“Disappointed with the agency’s reasoning”
Launching a scathing attack on Moody’s Investors Service, which recently affirmed India’s sovereign credit rating at Baa3 but flagged high debt levels and “political tensions,” a senior government official said the agency’s statement was cavalier and raised questions about its credibility.
“India’s fiscal strength remains a key weakness in the sovereign credit profile, balancing high economic strength,” Moody’s said in its statement on August 18.
“How strength can become constraints to fiscal metrics,” the official said taking umbrage at the language used by the agency in its official statement. “You can’t have contradictory statements and use poor language,” the official added.
Moody’s expects high nominal GDP growth and ongoing fiscal consolidation to stabilize the government debt burden at high levels.
India’s fiscal deficit was at 9.2% in the first year of Covid in FY21 as revenues were down like in many other countries. However, the fiscal deficit was brought down to 6.7% in FY22, 6.4% in FY23 and will be brought down to 5.9% in FY24.
“Where is the contradiction? Is this a problem?” the official asked, adding that UK, Japan and India will not have a debt crisis like many countries in the West in the past due to the fact that around 95% of debt in these three countries are financed in domestic currencies.
Moody’s has said that even as India’s narrowing fiscal deficit demonstrates ongoing government’s commitment to longer-term fiscal sustainability, it remains wider than Baa-rated peers.
“Who are these peers they are comparing India with? We don’t know why they do this and what they do,” the official said, adding that the agency may have put India in pre-determined peer group of its choice.
On Moody’s statement that “in the absence of more material gains in revenue, the central government will be challenged to achieve its fiscal deficit target of 4.5% of GDP for the fiscal year beginning April 2025 from 6.4% in fiscal 2022,” the official said India is on course to achieve the target by 2025-26 as planned.
On Moody’s projection of general government debt to stabilise at around 80% of GDP over the next two to three years, lower than the peak of almost 90% reached in fiscal 2020 (FY21) but higher than many similarly-rated sovereigns, the official said the fact that it has been brought down to 82% by FY23 shows the country’s determination on debt consolidation further.
“Moody’s expects high nominal GDP growth and ongoing fiscal consolidation to stabilize the government debt burden at high levels,” the agency had said. This is a contradictory statement when the world is saying that India will continue to be the fastest growing large economy for several years, the official said.
The rating agency has also flagged chances of increased fiscal risks, weakening institutions and rising political tensions such as in Manipur as possible downside risks to the current rating.
Source:gadget360.com