The prospect of a credit rating downgrade loomed over the economy with rating agency Moody’s on Tuesday cautioning that a fragmented mandate in the 2014 elections could raise the risk of downward revision of India’s sovereign bonds.
“The emergence of a strong coalition as a result of the upcoming general elections in India (Baa3 stable) would not act as a near-term game changer for Indian creditworthiness,” Moody’s Investor Service said in a latest report. “However, a fragmented government without either a clear mandate or policy platform would heighten downside credit risks,” it added.
Moreover, the increasing importance of regional parties will continue to hamper the efficacy of nationwide policymaking, regardless of the political complexion of the eventual central government.
Ghosh was speaking on the release of a special comment entitled Post-Election India: A Fragmented Coalition Will Be the Biggest Threat to Credit Quality.
Last November, US rating agency Standard & Poor’s (S&P) maintained a “negative” outlook on Indian economy and cautioned that it could downgrade the country’s sovereign ratings if the next government does not appear capable of reversing India’s low economic growth.
A downgrade will erode India’s attractiveness as a global business hotspot and investment destination. The negative outlook indicates that it may lower the rating to “junk” grade next year if the government that takes office after the elections does not appear capable of reversing India’s low economic growth.