Moody’s retains stable rating outlook for India

Slowdown Has Been Factored In Baa3 Status New Delhi: Moody's Investors Service said on Monday it was maintaining its stable outlook on India's rating despite slowing growth, high inflation and an uncertain investment policy environment. Moody's said these challenges have already been factored in their Baa3 rating and slowing growth, investment and poor business sentiment are unlikely to be permanent or medium term features of the Indian economy.      The announcement should come as a relief for policymakers, who have been battling severe criticism after two global ratings agencies Standard & Poor's and Fitch revised their outlook on India's rating to negative from stable, citing slowdown in growth, weak public finances, lack of economic reforms and stalled policies.      In fact S&P had cautioned that India could be the first country among the BRIC (Brazil, Russia, India and Chi na) group to lose its invest ment grade rating.      "Moody's Investor Service says it is maintaining its stable outlook on India's rating as various credit chal lenges — such as weak fiscal performance, tendency to wards inflation and an uncer tain investment policyenvironment — have charac terized the Indian economy for decades, and are already incorporated into the current Baa3 rating," the ratings agency said in a statement.      But Moody's said global and domestic factors, includ ing potential shocks in agri culture, could keep India's growth below trend for the next few quarters. Growth in the January-March quarter of 2012 slowed to a nine-year low of 5.3%, while overall growth in 2011-12 slowed to 6.5%, below the initial esti mate of 6.9%, raising alarm bells and prompting calls for urgent action to revive growth. "Moody's notes that its ratings express a view on medium-term sovereign creditworthiness and do not generally change with fluc tuations in growth related to the direction of the business cycle at a particular point, if Moody's believes growth will recover and sustain over time," the ratings agency said. It said the impact of lower growth and still-highinflation will deteriorate credit metrics in the near term, but not to the extent that they will become incom patible with India's current rating. Inflation is running well above the central bank's comfort level and in May stood at 7.55%, while retail inflation has been in double digits for three consecutive months. Food inflation is al so running in double-digits and the stubborn inflation ary pressures have prompt ed RBI to leave interest rates unchanged in its latest poli cy review earlier this month Moody's said the Indian gov ernment's debt and fiscal deficit ratios have always been worse than those of similarly rated peers.      On the issue of rupee's depreciation, Moody's said as the government's foreign currency debt comprises only 5.3% of its total debt and is equivalent to 3.8% of GDP, the rupee's decline does not raise the govern ment's own debt service bur den significantly.