Change In Outlook
The Global rating agency Moody's promoted India's rating outlook to stable from the negative ranking earlier. It also affirmed India's Baa3 rating signifying that the country has robust growth prospects and its economy is on its path to recovery after two years of uncertainty caused by the coronavirus outbreak. Moody's also noted that with higher capital cushions and greater liquidity, banks and non-banks financial institutions posed much risk to the sovereign than Moody's had previously anticipated.
The rating agency has revived its growth forecast to 9.3 % for the ongoing fiscal year and 7.9% the year thereafter, Moody's expects a growth trend lower, averaging around 6% which will allow for a gradual fiscal consolidation and stabilization of the government's debt burden. The government termed the move as a positive development which recognised the measure undertaken. Reforms in the financial sector and the way the financial sector itself responded... NPAs have declined significantly, profitability improved for the first time in 5 years and provisions coverage and equity capital done by the government with all that, prospects for further calibration (in ratings) are there. Also, repeal of retrospective tax, steady progress on privatization, launch of the national asset monetization program and uncompromising stance on cultural policy change indicate strong determination on part of the governments to reinvigorate reforms.
However, an upgrade in the ratings outlook, while positive, should not bring complacency. At the end of 2021-22, the Indian economy will be only marginally stronger than its free pandemic level of 2019-20. Of the driver’s growth, both private consumption and investment or likely to remain subdued, while government spending will continue to be constrained by high debt levels. If growth disappoints in the medium term, it could weaken the sovereign's fiscal strength further and lead to a negative rating action. It's better to keep the momentum and take necessary actions for reforms if need arises ahead.
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