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Published: Jan 10, 2023
Updated: Jan 10, 2023

India's Credit Rating Stable in 2023, But Upcoming Elections May Affect Social Spending

Credit Rating to remain stable in 2023

According to a report from Moody's credit rating agency, India's sovereign credit rating is expected to remain stable in 2023, despite the approach of elections in 2024. The country's strong institutional investor base and banking system have helped maintain affordable debt levels, with the report stating that India has a relatively larger institutional investor base and banking system compared to some of its counterparts in the Asia-Pacific region.

In addition, India's deep domestic funding and significant degree of concessional financing have also helped to mitigate negative credit effects. As a result, India is expected to maintain a stable credit rating, in line with the rest of the Asia-Pacific region.

India’s debt outlook- Looks worsening in coming years

1. India's government debt has increased from 71% of GDP in FY19 to 90% in FY21, and is expected to ease to 82.3% in FY23
2. The increase in debt is due to the primary deficit and the weighted excess of growth over effective interest rates
3. Nominal GDP growth is expected to be 7.3% YoY in FY24, similar to the effective interest rate, resulting in an increase in the government debt-to-GDP ratio to 84.7% in FY24 and 85% in FY25.

Slower growth ahead?

• India is facing slower growth in the coming year, following a two-step pandemic recovery in 2020 and 2021-2022
• The country recorded a year-to-year decline in the value of exports in October, according to Moody's Analytics
• The increase in government debt is driven by the primary deficit and the weighted excess of growth over effective interest rates
• The expected slowdown in GDP growth will likely result in an increase in the government debt-to-GDP ratio in the coming years

Outlook for Asia-Pacific Region: Stable

Despite higher global inflation and tighter financial conditions, the Asia-Pacific region as a whole is expected to perform better than other sovereigns globally. Moody's maintains a stable outlook for the region, noting that its debt and financial stability remain anchored, and GDP growth is forecast to stabilize closer to the region's potential after the post-pandemic shock.

Better Performance than counterparts

Overall, India's credit rating is expected to remain stable in 2023, thanks in part to a strong institutional investor base and banking system. However, the approach of elections in 2024 could impact social spending and limit the scope for structural reforms. Despite challenges, the Asia-Pacific region is expected to fare better than other sovereigns globally.