Moody’s Affirms India’s Baa3 Rating, But Mentions Manipur Violence

Moody”s Investors Service (“Moody”s”) has today affirmed Indian government”s long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at Baa3. Moody”s has also affirmed India”s other short-term local-currency rating at P-3. The outlook remains stable, the agency said, however it warned of “the Baa3 rating and stable outlook also take into account a curtailment of civil society and political dissent, compounded by rising domestic political risk” and quoted the recent ethnic violence happened in North-eastern state of Manipur.

Moody’s said the curtailment of civil society and political dissent, compounded by rising sectarian tensions, support a weaker assessment of political risk and the quality of institutions. “One recent event illustrative of these trends is the eruption of unrest in the north-eastern state of Manipur—one of the most impoverished states in India— that has led to at least 150 deaths since May 2023, and underpinned a no-confidence vote on Prime Minister Narendra Modi in August, although this was ultimately unsuccessful,” it added.

Moody”s investors’ service said that India”s economy is likely to continue to grow rapidly by international standards, although potential growth has come down in the past 7-10 years.

“High GDP growth will contribute to gradually rising income levels and overall economic resilience. In turn, this will support gradual fiscal consolidation and government debt stabilization, albeit at high levels. In addition, the financial sector continues to strengthen, alleviating much of the economic and contingent liability risks that had previously driven downward rating pressure,” a press release from the ratings agency said.

At the same time, according to the release, “a lasting upward shift in global and domestic interest rates highlights the risks stemming from a high debt burden and weak debt affordability, long-standing features of India”s sovereign rating which Moody”s expects to remain; the Baa3 rating and stable outlook also take into account a curtailment of civil society and political dissent, compounded by rising domestic political risk”.

According to Moody’s rating definitions, obligations rated Baa3 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Ratings of Prime-3 or P-3 reflect an acceptable ability to repay short-term obligations.