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Moody’s Report Downgrades its outlook on India from ‘Stable’ to ‘Negative’

Moody Investors Services, the global ratings major has changed its outlook on India’s ratings to ‘negative’ from ‘stable’, As per the reports, the downgrade was largely due to the slowdown in the economic growth of India as the prospects of reforms in the medium term has dimmed while stress in the financial sector has increased.

The downgrade in the sovereign outlook was followed by a downgrade in the outlook for a number of public and private sector Indian companies. The reports however, have left India’s current rating i.e. Baa2 unchanged, implying that the slowing economy has not yet affected India’s current rating, but could do so in future. Baa2 is the second-lowest investment grade score.

This cut in rating comes after almost after two years when Moody’s Ratings had upgraded India’s sovereign ratings from Baa3 to Baa2 in 2017 citing progress on ‘economic and institutional reforms’ by the then Government.

Reasons for Downgrade

  • Moody’s projected fiscal deficit of 3.7% of GDP in the year through March 2020 as against the Government’s projection of 3.3% of the GDP.
  • India’s growth outlook has deteriorated sharply this year owing to several reasons starting from the Non-Banking Financial Institutions (NBFIs) and then spreading to retail businesses, car makers, home sale and heavy industries.
  • India’s economy grew by 5% between April and June. This is its weakest pace since 2013, as consumer demand and government spending slowed amidst global trade frictions.

Impacts on India
The cut in India’s outlook is the first step towards an investment downgrade. It brings India just a notch above the investment grade country rating which implies that an actual downgrade can lead to massive foreign fund outflows. This lowering will put additional pressure on the Finance Ministry to take more measures in order to revive the economy.

On the contrary, the other two international rating agencies – Finch Ratings and the S&P Global Ratings, still hold India’s outlook at stable.

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