Lower growth, higher expenses could lead to downward pressure on India rating: Moody's

MUMBAI: Moody's Investor Service has said that lower growth, higher expenses compared to revenue and stress in banking system could lead to downward pressure on India rating. Currently, Moody's has assigned Baa3 rating - the lowest rank in the investment grade category, with a stable outlook.

Moody's have said that India could risk a downgrade if it's medium term growth rate does not exceed the global emerging market average. It is of the view that lower growth for a number of years would make it difficult for government's to sustain debt burden

The rating company also said that pile up of long term expenditure without compensatory revenue measures could also one of the factors to impact India's ratings. Moody expects a growth upturn but India to take modest fiscal consolidation measures. "This expectation would be derailed if policy remained expansionary during the recovery, or created long-term liabilities beyond what can be expected as part of pre-election populism," said the rating company.

Among other factors that could affect India's rating is quality of banks assets. "Greater than anticipated stress in the banking sector would also exert downward pressure on the government's rating," it said.
Moody's has said that banking system stress would also hurt growth, as well as savings intermediation since about half of all household financial assets are held by the banking system.

In its report Moody's have also said that government's rating is constrained due to weak financial position, weak social and physical infrastructure and policy inaction. "Efforts to address these constraints along with evidence that these efforts are both effective and will be sustained could lead to upward rating momentum," it said in its report.