Rating agency Moody’s said that the negative outlook of India reflects increasing risks that economic growth will remain significantly lower than in the past while cautioning of a rating downgrade if fiscal metrics deteriorate further.
“This is in light of the deep shock triggered by the COVID-19 outbreak, and partly reflects lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses, leading to a gradual rise in the debt burden from the already high levels,” Moody’s said.
Moody’s said while the government’s measures to support the economy should help reduce the depth and duration of India’s growth slowdown, the prolonged financial stress among rural households, weak job creation and credit crunch among non-bank financial institutions (NBFIs) have increased the probability of a more entrenched weakening. The negative outlook indicates that an upgrade is unlikely in the near term, Moody’s said. It said a change in the rating outlook to stable can happen if there is a significant increase in the probability of fiscal metrics stabilising and strengthening over time.
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“A downgrade of India’s rating would likely occur if we expected its fiscal metrics to weaken materially. This would probably happen in the context of a prolonged or deep slowdown in growth, with only limited prospects that the government would be able to restore stronger output through economic and institutional reforms,” it said.