Moody’s Predicts India’s Economic Growth to Surpass Other G20 Nations for the Next 2 Years

Moody’s Investors Service has reaffirmed India’s credit rating at ‘Baa3’, the lowest investment grade, and maintained a stable outlook. The agency acknowledged the potential for high economic growth in India, which is expected to surpass that of all other G20 economies for at least the next two years, driven by domestic demand. Moody’s also highlighted the country’s commitment to inflation targeting and financial system reforms following the pandemic, supporting their positive view of monetary and macro policy effectiveness.

However, Moody’s also pointed out certain risks, including the rise of political tensions and the potential for populist policies due to increased political polarization. They expressed concerns about the curtailment of civil society and political dissent, as well as rising sectarian tensions, which could impact the quality of institutions and political risk assessment. The agency noted that border tensions with neighboring countries were unusual for sovereigns with lower overall political risk susceptibility.

The agency mentioned that there have been violent incidents in Manipur leading to several deaths since May 2023. They indicated that while severe government destabilization is unlikely, ongoing political tensions could drive the adoption of populist policies, particularly at regional and local government levels, given social challenges like poverty and income inequality.

Moody’s pointed out challenges for the Indian government in achieving its fiscal deficit target due to limited revenue gains. They projected the general government debt to stabilize at around 80% of GDP over the next few years, lower than the peak in 2020 but higher than many countries with similar ratings.

In terms of India’s creditworthiness, all three major global rating agencies – Fitch, S&P, and Moody’s – maintain the lowest investment grade rating for India with a stable outlook. These ratings are crucial for determining a country’s creditworthiness and influencing borrowing costs.

Moody’s stable outlook is based on expectations of financial and external stability. They anticipate resilient credit growth, sufficient domestic liquidity to meet funding needs, manageable current account deficits, and adequate foreign-currency reserves to fulfill external payment obligations and imports.