India may seek a ratings upgrade from Moody’s amid recovery hopes

FinMin officials aim to convince the ratings agency of India’s firm recovery with details of how the country will meet its budget targets for the current fiscal, they added, asking not to be identified.

Moody’s had downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook in June last year.

The international firm cited a weak reform push contributing to a prolonged period of slow growth amid the Covid-19 pandemic, pointing out that the outbreak amplified vulnerabilities in India’s credit profile that were already present and building prior to the shock.

Back then, an official had downplayed the demotion to the
lowest investment grade, pointing out that 35 other countries too had been downgraded.

Last month, the international firm said economic activity in India is picking up with the gradual easing of COVID-19 restrictions. It added that there could be further upsides to growth as economies around the world gradually reopen.

However, Moody’s had said that it sees no change in India’s sovereign rating for the next two years.

The ratings agency believes that the second wave of infections hampered economic recovery and increased risks of longer-term scarring. In its August update to the ‘Global Macro Outlook 2021-22’, it retained India’s growth forecast for the 2021 calendar year at 9.6% and 7% for 2022.

The Indian economy contracted 7.3% in the 2020-21 fiscal. Though GDP growth was estimated to be in double digits in the current fiscal, a severe second wave led to various agencies cutting projections.

Moody’s and its global peers have come under fire for holding biases towards emerging market economies like India. The criticism furthers a deliberate assignment of lower credit ratings to emerging markets despite superior records.

S&P has the lowest investment grade ‘BBB-‘ rating on India with a stable outlook, while Fitch Ratings has kept India’s sovereign rating unchanged at ‘BBB-‘ with a negative outlook.

The Asian Development Bank revised down India’s economic growth forecast for the current fiscal yesterday to 10% from earlier 11%, citing the adverse impact of the second wave.

However, it added: “The outbreak dissipated faster than anticipated, resulting in several states easing lockdown measures and returning to more normal travel patterns.”

As per the United Nations Conference on Trade and Development (UNCTAD), India currently looks to be the fastest growing economy in 2022 at 6.7%, followed by China.

India’s economy is expected to grow 7.2% in 2021, the second highest in the world after China, UNCTAD said.