INDIA: Moody’s Updates India’s Government Bond Rating to Baa2 from Baa3

Tuesday November 21 2017

On 16^th November 2017, Moody’s Investors Service upgraded the Government of India’s local and foreign currency issuer ratings to Baa2 from Baa3. India’s Economic Outlook was also changed from a stable to a positive rating.

The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and its large and stable financing base for government debt. It is predicted that this will contribute to a gradual decline in the general government debt burden over the medium term.

In the meantime, while India’s high debt burden remains a constraint on the country’s credit profile, Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

The relatively fast pace of growth in incomes will continue to bolster the economy’s shock absorption capacity. And even in periods of relatively slower growth, as seen recently, stable financing will mitigate the risk of a sharp deterioration in fiscal metrics.

However, the high public debt burden remains an important constraint on India’s credit profile relative to peers, notwithstanding the mitigating factors which support fiscal sustainability.

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