Global ratings agency Moody’s failed to properly assess India’s robust macroeconomic fundamentals despite global turmoil when it retained its sovereign rating for the country at the lowest investment grade of ‘Baa3’ earlier this month, a senior finance ministry official said on Thursday.
India remains the world’s fastest-growing economy amid strong external headwinds and has managed inflation better than most economies, he said. The country’s economic growth is estimated to touch 6.1% in FY24 and 6.3% in FY25, more than double the world average of 3% for both 2023 and 2024, according to the International Monetary Fund.
The country’s debt levels have come down to about 82% of its gross domestic product (GDP) from 89% in the pandemic year of FY21, and the fresh market borrowing of the government is rising at a slower pace than that of the nominal GDP, said the official. The external debt-to-GDP ratio stands at a very comfortable level and the government debt is predominantly held in the domestic currency. All these suggest debt sustainability isn’t an issue for India, he added.
While the ratings agency continues to say India’s overall debt level remains way above that of similar-rated peers, strangely it doesn’t adequately appreciate New Delhi’s lower external debt level compared with others’, he said.
Commenting on fiscal discipline, the official said the Centre’s fiscal deficit dropped from 9.2% of GDP in the pandemic year (FY21) to 6.4% in FY23. It is estimated to ease to 5.9% this fiscal year and the government is committed to reduce it further to 4.5% by FY26. “So where is the issue of debt sustainability?” he asked.
While affirming the rating and “stable outlook” for India earlier this month, Moody’s had acknowledged the country’s robust growth but it also added: “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 official also questioned Moody’s assertion that India’s “fiscal strength remains a key weakness in the sovereign credit profile, balancing high economic strength”. “How can India’s fiscal strength be its weakness?” he asked.
Likely cut in FY24 market borrowing
Robust collections under various small saving schemes have offered enough flexibility to the government to consider reducing its FY24 gross market borrowing from the budgeted level, the official said on Thursday. Any cut in borrowing can potentially drive down bond yields, which have risen in recent weeks.
The government had budgeted gross market borrowing of Rs 15.43 lakh crore via dated securities for FY24. It has proposed to borrow Rs 8.88 lakh crore in the first half of this fiscal.
Any reduction in market borrowing will be considered only in the second half of this fiscal, he indicated.
Net mop-up under the National Small Savings Fund grew 48% on-year in the June quarter, way above a 9.9% rise a year before, he said. The net collections so far have touched 34% of the FY24 budget target.
The mop-up has been driven substantially by the Senior Citizen Savings scheme, which jumped 187% until July this fiscal to Rs 57,283 crore from a year before.
The 10-year benchmark G-sec yield hit 7.20% on Thursday. It has inched up from a 13-month low of 6.96% on May 16 but still remains lower than a nearly four-month high on February 27.
