Moody's Investors Service on Monday downgraded India’s foreign- and local-currency long-term ratings citing risks to economic growth, significant deterioration in the government’s fiscal position and stress in the financial sector.
The firm cut India’s long-term rating to Baa3---the lowest investment grade--from Baa2, it said in a statement. It also cut India’s short-term local-currency rating to P-3 from P-2. The outlook remains negative, it said.
“India faces a prolonged period of slower growth relative to the country's potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which the country's policymaking institutions will be challenged to mitigate and contain,” Moody’s said.
The decision comes just weeks after the ratings firm said that the impact of the coronavirus outbreak will exacerbate the slowdown in India’s economic growth and that the country is unlikely to record any growth in the current fiscal year.
The downgrade comes barely two-and-a-half years after Moody’s had lifted India’s rating in November 2017 for the first time in nearly 14 years.
Moody’s said its upgrade in November 2017 was based on the expectation that effective implementation of key reforms would strengthen the country’s credit profile through improvement in economic, institutional and fiscal strength. “Since then, implementation of these reforms has been relatively weak and has not resulted in material credit improvements, indicating limited policy effectiveness.”
The ratings firm also clarified that its downgrade wasn’t driven by the impact of the pandemic. “Rather, the pandemic amplifies vulnerabilities in India's credit profile that were present and building prior to the shock, and which motivated the assignment of a negative outlook last year.”
