The impact of the Russia-Ukraine conflict, higher inflation, and the tough financial conditions on the back of ongoing monetary policy tightening is unlikely to derail India’s current economic recovery from the pandemic in the year 2022 and 2023, global rating agency Moody’s said on Tuesday.
“The credit profile of India reflects key strengths including its large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt,” the rating agency said in a report.
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However, India’s principal credit challenges include low per capita income, high general government debt, low debt affordability and limited government effectiveness, it said.
The rating agency retained its sovereign rating on India at Baa3 with a stable outlook, the report showed.
“The stable outlook reflects our view that the risks from negative feedback between the economy and financial system are receding,” it said
On the contrary, the report said the rating agency considers India’s legislative and executive institutions, civil society and judiciary to be relatively strong.
“However, in our view, policy effectiveness has been lower than some international surveys, including the Worldwide Governance Indicators, suggest. While ongoing government efforts to reduce corruption, formalize economic activity and bolster tax collection and administration should further strengthen institutions over the medium term, there are increasing risks to their efficacy.”
About India’s monetary policy, it said macroeconomic effectiveness has increased materially over the past decade because of the Reserve Bank of India’s (RBI) formal and flexible inflation-targeting regime since 2015 and a monetary policy committee since 2016.
“Macroeconomic policy has also strengthened India’s external position, resulting in narrower current account deficits and higher foreign exchange reserves that mitigate external shocks,” the report went on to say.
Earlier this month, the rating agency, though, lowered India’s economic growth forecast for 2022 to 7.7 per cent from its earlier estimate of 8.8 per cent.
It attributed the lowering of the growth estimate to rising interest rates, uneven distribution of monsoons, and slowing global growth.
