Moody's to review India's sovereign rating amid global, regional risks

Business Standard

04-06-2025

Global rating agency Moody's will hold a meeting with officials in the Union government in New Delhi on Thursday to review India's sovereign rating—the first such exercise after the recent stand-off with Pakistan, subsequent ceasefire, and amid global trade tensions.
'Our reviews are ongoing, and we do have a semi-annual cycle for reviews, and we're taking this opportunity, while we're in India, to continue to engage with the government,' said Christian de Guzman, senior vice-president, Moody's Ratings, in response to a query from Business Standard.
The current ratings on India factor in geopolitical risks, including conflict with Pakistan, de Guzman said.
Moody's currently maintains India's sovereign rating at "Baa3" with a stable outlook, the lowest investment-grade rating. Agency officials had earlier met Indian counterparts in April in Washington, DC, during the Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF).
Asked whether the review would address the implications of the recent standoff with Pakistan, de Guzman said, 'I think when we engage with the government, we engage on everything.' He added that the recent escalation and subsequent de-escalation of tensions with Pakistan were consistent with Moody's view on India's political risk environment.
On the impact of global tariff shocks on growth, de Guzman said, 'We have reviewed our expectations for growth across the G20, and we have adjusted those growth forecasts in a manner that is consistent with their exposure to the tariff shock. In the case of India, that exposure, in relative terms, is small.'
In early May 2025, Moody's lowered its growth forecast for India by 30 basis points to 6.3 per cent for 2025.
In a note dated May 21, 2025, Moody's stated that persistent tensions—such as the recent escalation between India and Pakistan—were already accounted for in its geopolitical risk assessment. 'In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan,' the note said.
Moreover, regions that account for most of India's agricultural and industrial output are geographically distant from the conflict zones. However, the note added that higher defence spending could weigh on India's fiscal strength and slow fiscal consolidation.
India is better positioned than many other emerging markets to deal with US tariffs and global trade disruptions, thanks to strong domestic growth drivers, a large internal economy, and low reliance on goods trade, according to a Moody's note on the impact of tariffs on emerging markets.
Significant government investments are expected to bolster sectors ranging from infrastructure to manufacturing, at a time when rapid urbanisation and a young population are driving structural demand for housing and consumer goods. The agency also said easing inflation offers the potential for interest rate cuts to further support growth.