Moody’s keeps India outlook ‘positive’

A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York, February 6, 2013. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)

Moody’s Investors Service has retained its positive outlook on India, the company said on Wednesday, predicting a continued reform push and lowering of debt levels.

“The positive outlook denotes Moody’s expectation that, over time, India’s credit metrics will likely shift to levels consistent with a Baa2 rating,” Moody’s Investors Service said in a note.

“In particular, the outlook reflects our expectation that continued policy reform implementation will allow balanced growth to support a reduction in the government debt burden, currently a constraint on India's rating.”

Moody’s further said that a number of policies have already been put in place to moderate inflation and limit the current account deficit. “In addition, a number of policy reforms, if effective, would lead to higher investment and more efficient savings,” the note added.

Private investment low

However, Moody’s said that private investment had still not picked up, despite the government’s efforts, which shows the limited effectiveness of government policy in this regard.

“Investment has been constrained by high leverage in some sectors, a relatively unfavourable global environment and, in some cases, limited access to finance,” the note said.

Moody’s pointed out that there are several factors bolstering India’s up-gradation to a higher rating, including its size, growth potential, and increase in income levels.

“GDP per capita in India was 11 per cent of the U.S. levels on a Purchasing Power Parity basis in 2015 - still well below the level in other Baa-rated sovereigns,” the note said. “But this level marks an increase from 6.6 per cent of U.S. levels in 2005 and 9.2 per cent in 2010.”

India’s constraints

Moody’s also pointed out that India had several constraints that could keep its credit rating where it was, such as income and consumption levels remaining vulnerable to external shocks like a poor monsoon, for example. The high debt levels of the government also play a part in weakening India’s position, the note added.

“We would consider an upgrade upon evidence that institutional strengthening will elicit sustained macroeconomic stability, higher levels of investment and more favourable fiscal dynamics,” Moody’s said.