Indian Economy / Good news on the economic front, US agency expresses confidence again

Indian Economy: Moody's, a leading US rating agency, recently maintained India's long-term local and foreign currency issuer ratings at Baa3, with a "stable" outlook. Furthermore, the senior unsecured rating also remained at Baa3. Simply put, these ratings indicate India's ability to repay debt incurred in its own currency (rupees) and foreign currencies (such as the dollar). The senior unsecured rating indicates India's ability to repay unsecured debt remains strong.

Moody's Stable Rating and India's Economic Strength

Moody's also maintained India's short-term local currency rating at P-3. In its statement, Moody's said that these ratings and the stable outlook reflect India's rapidly growing economy, strong external position, and solid domestic financing base. These factors help manage India's current fiscal deficit.

Moody's report also highlighted some of India's key strengths:

Rapid Economic Growth: India's economy continues to grow rapidly, making it a strong player on the global stage.

Strong External Position: India's foreign exchange reserves and export-import balance enable it to withstand global economic fluctuations.

Strong Domestic Financing Base: India's domestic financial structure is strong enough to support government spending and debt.

Ability to Deal with Global Challenges

Moody's also noted that these strengths help India insulate itself from the impact of global challenges, such as high US tariffs or other global policies. These policies could impact investment in India's manufacturing sector. However, India's strong economic foundation and consistently rising GDP growth enable it to address these risks.

However, Moody's also cautioned that India's high debt burden remains a challenge. Even though India's GDP growth is strong and its fiscal position is gradually improving, it will take time for debt levels to decline. Some recent government measures, such as plans to boost private consumption, have somewhat weakened the government's revenue base.

Bond Ceiling and Other Ratings

Moody's has maintained India's long-term local currency (LC) bond ceiling at A2 and foreign currency (FC) bond ceiling at A3. Earlier, on August 14, S&P Global Ratings upgraded India's sovereign rating from 'BBB-' to 'BBB', reflecting India's growing economic credibility.

EY's 'Economy Watch' Report: Confidence in India's Growth

In its latest 'Economy Watch' report, EY has raised its real GDP growth forecast for India for fiscal year 2025-26 (FY26) from 6.5% to 6.7%. This increase was primarily driven by strong GDP growth of 7.8% in the June quarter and improved demand due to GST reforms.

However, EY also cautioned that global challenges, such as disruptions to exports of goods and services, could impact India's growth. Nevertheless, EY remains confident that India will achieve real GDP growth of 6.7% in FY26.

What does this mean for India?

These reports by Moody's and EY underscore India's economic strengths and potential. On the one hand, India's rapidly growing economy and strong financial structure make it a reliable player on the global stage. On the other hand, high debt and some fiscal weaknesses remain challenges. The government will need to focus on long-term policies to address these weaknesses to maintain India's economic growth and stability.