New Delhi: Rating agency Moody's on Tuesday indicated that it may not upgrade India's sovereign rating soon as positive implication of reforms may be felt in medium term and there may be risks from global factors.
The agency pointed out that it could upgrade India’s rating in 1-2 years if it is convinced that reforms are “tangible”. The indication comes when finance ministry officials will be meeting with Moody’s officials on Wednesday to pitch for a rating upgrade for the country.
India’s sovereign rating by Moody’s stands at Baa3, the lowest investment grade — just a notch above junk status. “We have a positive outlook on India. On balance, the risk is on the upside. We are continuously monitoring the rating. We see pressure building up in 1-2 years and any tangible change could bring about a change in rating,” said Moody’s sovereign group Senior VP Marie Diron.
The rating agency said that in the near term, challenging Budget targets could lead to significant spending cuts late in the year, especially since fiscal deficit till July had touched 74 per cent of the whole year’s target.
“The credit implications of India’s reforms will materialise in the medium term," it said. In the near term, Moody's expects that private investment will remain weak as corporates in investment-intensive sectors are burdened by elevated debt levels.
The agency said that evidence of policy makers working towards a faster fiscal consolidation, reducing the debt-GDP ratio and addressing infrastructure and monsoon volatility challenges will determine an upgrade, going forward.
However it pointed out that weak balance sheet of PSU banks continues to pose contingent liability risk and muted private sector investment constrains India's ratings. “Reforms have been slow and gradual and we are waiting for that confidence that reforms will be tangible and able to change investor confidence, and corporates start seeing improvement in business environment,” said Mr Diron.
