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Moody’s upgrades India’s rating to ‘stable’ from ‘negative’

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Moody’s Investors Service has upgraded India’s sovereign rating outlook to ‘stable’ from ‘negative’ after the impact of COVID19 and related lockdowns on the economy has reduced.

Moody’s also said that that expect real GDP to surpass pre-pandemic levels of 2019-20 this year itself. It also expects 2021-22 to record a 9.3% growth in GDP, followed by 7.9% next year. In June 2020, Moody’s had downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook. 

The agency also said that while risks stemming from a high debt burden and weak debt affordability remain, Moody expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile.

Also read: New covid wave and its impact on India’s economy

Moody’s expectations over real GDP

The Moody’s also expects that real GDP growth to average around 6%, reflecting a rebound in activity to levels at potential as conditions normalize. It further added that the growth projections take into account structural challenges, including weak infrastructure, rigidities in labor, land, and product markets that continue to constrain private investment and contribute to post-pandemic economic scarring.

It emphasized that India’s main credit challenges, it’s low per capita income, and its weak fiscal position, which has been exacerbated by the coronavirus shock. India’s general government debt burden increased sharply from 74% of GDP in 2019 to an estimated 89% of 2020 GDP, significantly higher than the Baa median of around 48%. Meanwhile, interest payments are about 26% of general government revenue, the highest among Baa-rated peers and more than three times the Baa median of 8%.

Also Read: The current wave of Corona has no effect on the economy- RBI

The agency also said in a statement that looking ahead, Moody expects the debt burden to stabilize at around 91% over the medium term, as strong nominal GDP growth is balanced by a gradually shrinking, but still sizeable, primary deficit.

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