Modi's Gives India's Economy A Thumbs Up, Raising Its Outlook From Negative To Stable

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Modi's Gives India's Economy A Thumbs Up, Raising Its Outlook From Negative To Stable
08 Feb 2023
5 min read

News Synopsis

Latest Updated on 31 January 2023

In contrast to the negative outlook for sovereigns globally, Modi's Investors Service reported on Monday that the creditworthiness outlook for nations in the Asia-Pacific (APAC) region, including India, for 2023 is stable.

With limited government liquidity risks generally, stable debt dynamics, and solid overall external positions the region's Debt Sustainability and Financial Stability are pretty well anchored, according to a study by the credit rating agency.

It said that despite higher global inflation and tighter financial conditions Gross Domestic Product growth will stabilize close to potential levels and outperform other areas. Most of the sovereigns have started fiscal consolidation, but the pace has been slowed by social pressures.

For India which is still recovering from the epidemic Modi's expects that output gaps would continue.

According to research from the rating agency published by IANS, debt affordability has been anchored in India, Malaysia, and Thailand because of their large institutional investor bases and banking systems.

The paper claims that high commodity prices would keep spending on food and fuel subsidies or other measures from declining particularly in countries like Bangladesh and India where elections are expected to take place in 2023 or early 2024.

Most local governments' fiscal deficits are pretty much equal to or very close to their debt-stabilizing fiscal balances. According to Moody's, debt loads will either keep increasing or stabilize at higher levels in nations like Malaysia and India.

According to the rating agency, as interest rates rise debt affordability will fall from generally strong levels and stay manageable for the bulk of people in the area.

The main risks are lower Chinese Economic Development for a prolonged period of time, severe credit limitations for frontier economies with lower credit scores that will continue to see increasing liquidity and currency depreciation pressures, as well as local and international politics.

Last Updated on 06 October 2021

Modi maintained India's sovereign rating on Tuesday and upgraded the country's outlook from 'Negative' to Stable.' The shift to stability reflects Modi's judgment that the downside risks from negative feedback between the real economy and financial system are fading. Modi has been awarded the sovereign rating of 'Baa3,' which is the lowest investment grade, just above junk status. According to Modi, banks and non-bank financial firms offer significantly less risk to the sovereign than previously believed. Modi expects the economic environment to allow for a slight reduction in the general government fiscal deficit over the next few years.