AFFIRMING INDIA’S sovereign rating at ‘Baa3’ with a stable outlook and underlining that it expected the country’s economic growth to outpace all other G20 economies through at least the next two years, Moody’s Investors Service Friday, however, said “the curtailment of civil society and political dissent, compounded by rising sectarian tensions” supported a weaker assessment of political risk and the quality of institutions.

Listing the factors that could lead to a downgrade of the ratings, New York-based Moody’s said: “An escalation of political tensions and/or a further weakening of checks and balances that would undermine India’s long-term growth potential would likely contribute to a downgrade. In general, durably weaker growth than currently projected would contribute to an ongoing rise in the debt burden, which would weaken the sovereign’s fiscal strength and put downward pressure on the rating. In addition, a resurgence of financial sector stress that is unlikely to be addressed promptly and effectively would also put downward pressure on the rating.”

The rating agency endorsed the NDA government’s management of the overall fiscal situation, its infrastructure push and the implementation of the digital public infrastructure. “The affirmation and stable outlook are driven by Moody’s view that India’s economy is likely to continue to grow rapidly by international standards, although potential growth has come down in the past 7-10 years,” it said.

While the Moody’s report highlighted the stronger macro policy effectiveness, it flagged the weakening institutions and rising political tensions.

Rising political tension may contribute to downgrade, says agency, cites Manipur.

In its latest note, Moody’s said it expects India’s economic growth to outpace all other G20 economies through at least the next two years, driven by domestic demand. It said the government’s ongoing emphasis on infrastructure development, mirrored in the increasing share of capital expenditure in the Union Budget has led to tangible improvements in logistic performance and the quality of trade and transport-related infrastructure.

Source: The Indian Express