India’s credit rating cut to lowest investment grade

Moody’s Investors Service has downgraded India’s credit rating to Baa3 from Baa2 with negative outlook, citing growing risks that Asia’s third-largest economy will face a prolonged period of slower growth amid rising debt.

“The decision to downgrade India’s ratings reflects Moody’s view that the country’s policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector,” the ratings agency said.

It has also revised its current fiscal year (April 2020 to March 2021) GDP estimate for India to four percent contraction against zero percent growth projected earlier, citing a shock from the Covid-19 pandemic-related lockdown measures.

Moody’s downgrade comes in line with two other major global rating agencies, Fitch and Standard & Poor’s, which also have the lowest investment grade rating (with stable outlook) for India at present.

S&P said last week that the country’s economy will shrink by five percent in the current fiscal year. According to the agency, growth is expected to pick up to 8.5 percent in the following fiscal year (up from the previous forecast of 7.5 percent). The country’s GDP is projected to expand by 6.5 percent.

India’s economic growth in the March quarter slowed to an 11-year low at 3.1 percent. Some 122 million Indians were forced out of jobs last month alone, the Center for Monitoring Indian Economy said on Monday, adding that the unemployment rate in May rose to 23.48 percent as a result of the coronavirus pandemic lockdown.

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