The impact of the Russia-Ukraine conflict, higher inflation, and tightening global financial conditions on the back of policy tightening, is unlikely to derail India’s ongoing recovery from the pandemic in 2022 and 2023, Moody’s said in a release on Tuesday. As per the release, India’s sovereign ratings has been retained by Moody’s at Baa3 with a stable outlook, IANS reported.
“The stable outlook reflects our view that the risks from negative feedback between the economy and financial system are receding.
“With higher capital buffers and greater liquidity, banks and non-banking financial institutions (NBFIs) pose much less risk to the sovereign than we previously anticipated, facilitating the ongoing recovery from the pandemic. While risks stemming from a high debt burden and weak debt affordability remain, we expect that the economic environment will allow for a gradual narrowing in the general government fiscal deficit over the next few years, avoiding further deterioration in the sovereign credit profile,” the release said.
The release also said that the ratings agency could upgrade the rating if India’s economic growth potential increased materially beyond their expectations, supported by the effective implementation of economic and financial sector reforms that led to a significant and sustained pickup in the private sector investment.
“Effective implementation of fiscal policy measures that resulted in a sustained decline in the government’s debt burden and improvements in debt affordability would also support the credit profile,” release added.
Meanwhile, India’s economic growth forecast for 2022 was slashed to 7.7 per cent by Moody’s Investors Service on September 1. The rating agency said that rising interest rates, uneven monsoon, and slowing global growth will dampen economic momentum on a sequential basis, the PTI reported.
Moody’s in May had projected the country’s GDP to expand by 8.8 per cent this year. The GDP expanded by 8.3 per cent in 2021 and contracted by 6.7 per cent in 2020, the year when the pandemic struck India.
In its update to Global Macro Outlook 2022-23, Moody’s said the Reserve Bank of India is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further.