08 November, 2019
4 Min Read
Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
News: Global ratings agency Moody’s Investors Service has cut its outlook on the Government of India’s ratings to negative from stable, but affirmed the Baa2 foreign-currency and local-currency long-term issuer ratings.
Prelims focus: About sovereign ratings
Mains focus: What does the downgrade mean for India? Implications and what needs to be done?
Implications for India
Why did Moody’s cut India’s rating?
Indian government arguements:
Noting Moody’s concerns, the Finance Ministry said that India continues to be among the fastest growing major economies in the world, and India’s relative standing remains unaffected.
The Government said it has undertaken series of financial sector and other reforms to strengthen the economy as a whole.
It has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments.
The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term.
About different general credit ratings?
AAA: Highest credit quality that denotes the lowest expectations of default risk.
AA+/AA/AA-: Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments.
A+/A/A-: High credit quality that denotes expectations of low default risk. The capacity for payment of financial commitments is considered strong, however, vulnerability to adverse business or economic conditions exists.
BBB+/BBB/BBB-: Good credit quality that indicates that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.
BB+/BB/BB-: This rating indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial commitments.
B+/B/B-: This rating indicates that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC+/CCC/CCC-: Substantial credit risk exists in this rating, where the default is a real possibility.
CC: This rating shows a very high level of credit risk with a possibility of defaults.
C: This rating shows that a default or default-like process has begun, or the issuer is in a standstill.
DDD/RD/SD/DD/D: This indicates that the issuer has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure or has ceased business.
Source: Indian Express
Copyright© Aspire IAS Academy. All rights reserved. Powered by CLT Technologies & Edu-Publishers Private Limited.