Rating agency Moody’s downgraded India’s foreign currency and local currency long term issuer ratings to Baa3 from Baa2, while maintaining a negative outlook, citing prolonged period of low growth and further deterioration in the government’s fiscal position.
Moody’s said the negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength.
Baa3 is the lowest in investment grade in Moody’s rating ladder. This means, India is just one notch above the non-investment grade or junk grade.
The rating agency expects the country’s GDP to contract by 4% in the current financial year due to the shock from the pandemic and related lockdown measures. The GDP growth, however, is expected to pick up in the next fiscal to 8.7% and closer to 6% in the year after.