Global credit rating agency Moody’s has reaffirmed India’s long-term credit ratings at ‘Baa3’ for both local and foreign currency bonds, as well as its local-currency senior unsecured rating.
In a recent statement, Moody’s also confirmed India’s short-term local currency rating at ‘P-3’, maintaining a ‘stable’ outlook for the nation’s economic future.
This decision to uphold India’s ratings and maintain a stable outlook stems from Moody’s confidence in the country’s enduring economic strengths. These include its massive and rapidly expanding economy, a robust external financial standing, and a reliable domestic funding system that supports its ongoing fiscal needs.
Such inherent strengths offer a crucial buffer against global economic headwinds, particularly when factors like elevated U.S. tariffs and other international policies could impede India’s efforts to attract manufacturing investments. However, Moody’s also highlighted that these positives are tempered by persistent fiscal vulnerabilities within India, which are expected to continue.
Despite impressive GDP growth and ongoing efforts towards fiscal consolidation, the rating agency cautions that the government’s substantial debt burden will only decrease very slowly. Furthermore, these measures might not significantly enhance the country’s weak debt affordability, especially since recent fiscal policies aimed at boosting private consumption could simultaneously reduce government revenue.
The long-term ceilings for India’s local-currency (LC) bonds remain at ‘A2’, while its foreign-currency (FC) bond ceiling stays at ‘A3’.
Moody’s pointed out that the four-notch difference between the local currency bond ceiling and the issuer rating is indicative of mild external imbalances. These include persistent, though manageable, current account deficits, a significant government presence in the economy, and a moderate level of predictability and reliability in government policies.
The rating agency further explained that the single-notch gap between the local and foreign currency ceilings signifies India’s limited external debt and a low probability of a debt moratorium. This is particularly relevant given recent initiatives to liberalize portfolio investments for non-residents.