Moody’s sees nil growth for India in FY 2021
Moody’s Investors Service on Friday cautioned that the country’s sovereign rating could be downgraded if its fiscal metrics weaken materially, following a similar warning from Fitch Ratings. The rating agency also slashed its growth projection for India to 0% for FY21.
“This would probably happen in the context of a prolonged or deep slowdown in growth, with only limited prospects that the government would be able to restore stronger output through economic and institutional reforms,” the rating agency said.
Last November, Moody’s had revised its outlook for India’s sovereign rating from stable to negative. Moody’s credit rating of Baa2, the second-lowest investment grade score, is better than those of S&P Global Ratings and Fitch, which have assigned the lowest investment grade to India with a stable outlook.
India’s nationwide lockdown, considered the severest in the world, has led to massive retrenchment and loss of output. Unemployment rate climbed to a staggering 27.1% in the week to May 3, while around 121.5 million reported job losses in April, data from the Centre for Monitoring Indian Economy showed. The government is contemplating the size and nature of a stimulus package, including the source of its financing.
Advocating monetisation of government deficit in a measured way, former Reserve Bank of India governor Raghuram Rajan on Thursday said if the fiscal deficit and the growth in government debt are deemed unsustainable, investors and rating agencies will take fright. “This is where we need to put in place measures that ensure we will go back to fiscal health over the medium term—such as the debt target and the fiscal council suggested by the NK Singh Committee. Modern Monetary Theorists are wrong to think that central bank financing of the government can be ignored,” he wrote on Linkedin.
A marked and long-lasting weakening in the health of the financial sector would both raise associated fiscal costs should the government need to support some financial institutions, and increase the risk that growth remained too low to prevent a rise in the debt burden, Moody’s said.
It added that India’s credit profile is supported by its large and diverse economy, and stable domestic financing base. “This is balanced against high government debt, weak social and physical infrastructure, and a fragile financial sector, which face further pressures amid the coronavirus outbreak. The shock will exacerbate an already material slowdown in growth, which has significantly reduced prospects for durable fiscal consolidation,” the rating agency added.