Moody's said on Tuesday that the outlook on its Baa3 rating for India is stable, in part due to the country's high savings and investment rates, as debate rages in Delhi over whether the country can avoid credit downgrades from other rating agencies.
In its annual credit analysis on India, which Moody's said does not constitute a rating action, the agency also cited the country's large, diverse economy and strong gross domestic product growth as supportive of the rating.
However, Moody's said: "The rating is constrained by the credit challenges posed by India's poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment."
Last month, Standard & Poor's warned India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, although it said a series of reform steps launched in September had slightly improved the country's prospects.
Fitch also has a negative outlook on India.
Having faced a series of revenue-raising setbacks, the Indian government is grappling with a widening fiscal deficit that threatens to undermine the country's credit standing and possibly trigger a downgrade to junk status.
Finance Minister P. Chidambaram has an ambitious target of holding the government's fiscal deficit for 2012/13 at 5.3 percent of gross domestic product, even as sceptical private economists forecast a deficit closer to 6 percent.
India's rating outlook stable, says Moody's
Moody's today said India rating outlook is stable because of the country's strong economic growth along with high savings and investment rates.
"India's Baa3 rating and stable outlook are supported by credit strengths which include a large, diverse economy, strong GDP growth and savings, and investment rates that exceed emerging market averages," the global rating agency said in its 'Credit Analysis on India' report.
It, however, said the rating is constrained by the credit challenges posed by India's poor social and physical infrastructure, low per capita income, high government deficit and debit ratio.
The rating has also been constrained due to the country's complex regulatory environment and a tendency towards inflation, Moody's added.
The government aims to restrict the fiscal deficit to 5.3 per cent of GDP this fiscal. It has also announced a slew of measures to spur infrastructure development and liberalised foreign direct investment norms.
"However, given the delayed timing and still modest scope of these measure, growth may remain subdued in the near term amid continued domestic political uncertainty and a global slowdown," Moody's added.