Finance ministry officials met Moody’s executives on Friday and pitched for an upgrade to India’s sovereign ratings. They discussed a range of factors, including the budget, disinvestment targets, and borrowings. They also emphasized that India’s economic strength is more significant than its debt burden, unlike other emerging economies rated lower.
Chief Economic Advisor V Anantha Nageswaran led the meeting. The government wants to convince the global rating agency that its policies are working. A higher rating can reduce the riskiness of borrowings for the country and lower the cost of capital for businesses.
A higher sovereign rating also makes borrowing internationally easier for the government. The ratings are based on a vast body of research and analysis by Moody’s Investors Service, Inc., which provides credit ratings, research and analysis, enterprise risk management, and valuation services. Moody ranks securities on a scale of Aaa to C, with Aaa being the highest quality and lowest credit risk.
Moody’s will review India’s ratings in August, with the outcome possibly impacting India’s borrowing costs and growth outlook. But the timing of the review could be affected by several factors, including the impact of the coronavirus pandemic on the economy, the state of India’s finances, and the prospects for reforms.
India’s rating has been under pressure for years. Despite strong economic growth, the government’s finances are strained due to rising debt and slowing inflation. The government has been trying to speed up reforms and lower taxes, but more is needed to upgrade the rating.
In January, Moody’s downgraded India’s rating to Baa3 with a stable outlook, saying that the reforms will unlikely push growth back to 8%, as earlier seemed possible. It also cited the impact of the pandemic on India’s financial health, as it has increased government expenses and reduced revenue, leading to a wider budget deficit.
Moody’s said that the higher deficit would make it harder for the government to meet its debt repayment targets. It also cited declining revenues from taxation and a decline in listed companies’ free float, making raising money from the capital markets more challenging.
The rating agency also said that the government’s ability to reduce its debt and contain inflation would be hampered by weak economic conditions, particularly slowing GDP growth. The global economy is expected to slow down in 2022, a trend that will also hurt domestic demand.
Moody’s has downgraded the ratings of several Indian companies, including the Adani Group’s flagship company, Adani Power after it bought a majority stake in the project last year. After acquiring the generic drug maker in March, it also downgraded Teva Pharmaceuticals’ credit rating. The downgrade was primarily due to the company’s increased indebtedness and integration risks, as well as sales erosion owing to the patent expiration and loss of market share for Copaxone.
