Countries across the worlds are crying and shedding tears to get a favourable rating from top credit agencies of the world. But after the 2008 sub-prime crises, these credit rating agencies are more cautious and conservative in giving ratings. Foreign inflows and investments in developing countries are dependent on these ratings. Covid19 pandemic has left these agencies in no-mans’ land where all permutations and combinations in a normal scenario have gone for a toss. This had resulted in them downgrading ratings to several countries including India.
In June 2020, Moody’s had trimmed India’s rating by a notch to the lowest investment grade, which is just a notch above junk status, and retained the ‘negative’ outlook, citing weakening fiscal metrics in the wake of the Covid-19 outbreak. Appreciating that banks and NBFCs now pose a lesser downside risk to the real economy thanks to the steps taken by the government and the banking regulator to repair their impaired balance sheets, Moody’s Investors Service on 5th October, 2021 affirmed India’s sovereign rating at Baa3, the lowest investment grade, while upgrading the country’s outlook to ‘stable’ from ‘negative’. Downside risks to growth from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave.
Looking ahead, Moody’s expects real GDP growth to average around 6% over the medium term, reflecting a rebound in activity to levels at potential as conditions normalize. In turn, a return to trend nominal GDP growth of around 10-11% over the next few years will allow for a gradual fiscal consolidation and stabilisation of the government’s debt burden, albeit at high and above pre-pandemic levels.
NPowersU Expert Opinion
Due to government’s timely intervention and updating the credit agency, Diwali has come a bit early to Investors in the form lifetime highs in the stock markets. The government has not only provided reliable data to the agency, but also proved that proactive approach will reap benefits all throughout India.
Let us culminate this blog with a tickler:
‘Cry and cry until you succeed’
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