Why Moody’s Downgraded India's Sovereign Rating?  #sovereign #rating #moodys #baa3 #india
Channel: MentorTalk
Date: 2020-06-03

Moody's Downgrades India's Sovereign Rating, Maintains Negative Outlook
Hemant Batra, Hemant K Batra, Mentor Talk, #HemantBatra, #MentorTalk


Quite shockingly Global credit ratings agency Moody's Investors Service has downgraded India's sovereign rating to ''Baa3'', which is the lowest investment-grade rating – short of being called literally a trash category. It is unbelievable. But let’s see what and why Moody’s did what it did. In today’s Mentor Talk I will be sharing certain facts about Mood’s recent low and shaky rating of India. So, keep watching this video.
Moody's has downgraded Government of India's foreign-currency and local-currency long-term issuer rating, and local-currency senior unsecured rating to "Baa3" from "Baa2", and short-term local-currency rating to "P-3" from "P-2" principally referring to challenges in the implementation of policies to minimize risks of a continued period of low growth and deteriorating fiscal position.
Moody's has downgraded the ratings of major Indian companies like ONGC, HPCL, IOCL, BPCL, and even TCS, and Infosys to ‘negative’ as it downgraded India's sovereign rating to Baa3 negative. Further, Moody's has declared the long-term issuer ratings of Reliance Industries Limited to ‘negative’ from ‘stable’. 
Already the other two main rating agencies in the world —S&P and Fitch have rated India as low in the investment category. So now all three major rating agencies have downgraded India quite alarmingly.
Moody’s decision to downgrade India basically finds its basis on the Inadequate implementation of economic reforms in the past couple of years, Comparatively low economic growth over a prolonged period, Considerable decline in the fiscal position of both central and state governments, And the mounting pressure on India’s financial sector.
Moody’s has emphasized continual fundamental challenges to a better economic growth like “fragile infrastructure, rigidities in labour, land and product markets, and escalating financial sector risks”. What bothers me the most is that though this downgrade is in the context of the Coronavirus pandemic, but it is not driven by the impact of the pandemic. This is clarified by Mood’s statement.
Ratings are centred and built  on the complete condition of the economy and the state of government finances. A rating downgrade implies that bonds issued by the Indian governments are now “riskier”, since weaker economic growth and deteriorating fiscal health weaken a government’s capacity to pay back.
Ironically in November 2017, Moody’s had assigned India with “Baa2” rating with a “stable” outlook On the premise that effective implementation of key reforms would strengthen the sovereign’s credit profile but unfortunately the implementation of reforms has been relatively weak and has not resulted in material credit improvements, indicating limited policy effectiveness.
The slight face-saving and the brighter light sneaking out of Moody's projections are that though the country's real GDP may contract 4 per cent in the fiscal year 2020 due to the shock from the coronavirus pandemic and related lockdown measures, followed by 8.7 per cent growth in fiscal 2021 and closer to 6.0 per cent thereafter.
A prolonged period of slower growth may dampen the pace of improvements in living standards… That is the challenge our Government and We the people will have to be prepared for. 
I hope you found this video informative. See you next time at Mentor Talk with a new topic of your interest.