Moody’s Affirms India’s ‘Baa3’ Rating with Stable Outlook

On Monday, Moody's Ratings reaffirmed India's long-term foreign-currency issuer rating, long-term local-currency rating, and foreign-currency senior unsecured rating at Baa3 with a 'Stable' outlook. The action represents the country's solid economic growth and good external position.

The global credit ratings agency also reaffirmed India's short-term local-currency rating at P-3.

In a release, Moody's stated, "The rating affirmation and stable outlook take into account our opinion that India's current credit strengths, such as its large, rapidly expanding economy, solid external position, and stable domestic funding base for recurring fiscal deficits will be maintained."

The agency pointed out that although India's strong GDP growth and slow fiscal consolidation are good, they will result in only a gradual lowering of the high debt burden of the government. This rate is not likely to have a material improvement in debt affordability, especially as recent fiscal measures taken to stimulate private consumption have somewhat dented the government's revenue base.

Moody's left India's long-term local-currency (LC) bond ceiling intact at A2 and its long-term foreign-currency (FC) bond ceiling at A3.

The agency said the four-notch difference between the LC ceiling and the issuer rating is because of "modest external imbalances, including persistent though narrow current account deficits; a relatively large government presence in the economy; and moderate predictability and reliability of government policies.

It also noted that the single-notch gap between the LC and FC ceilings is a testimony to sparing external indebtedness and the minimal probability of a debt moratorium, especially in light of recent steps towards liberalizing non-resident portfolio investment.