Rating agency Moody's has dropped India's rating. Rating means credit rating which can also be called credit in easy language.

What is meant by someone's credibility in the market is exactly the same as the country's rating in the international market. This means that it will be difficult to get loan and the pressure to return will be increased for those who have already taken loan. Moody's is the third major rating agency in the world to have downgraded India. Two other agencies Fitch and Standard and Poor had already dropped this rating.

Moody's rating drop means that bonds issued by the Indian government to raise debt in foreign markets or domestic markets will now be considered less reliable. This rating has reached the lowest level in the last twenty two years. Earlier in 1998, the rating was dropped, and it reached the same level. When the US imposed economic sanctions on India after India's nuclear tests.

The price is so low that Moody's has dropped the rating to Baa3, which can be called the lowest rung of the investment grade. This means that long-term bonds issued by the Government of India will still be considered worth investing, just as the risk is increased.

Even in November last year, there was a fear that Moody's might drop the rating, but then it retained the rating a notch above that at Baa2. However, at that time he changed his perspective on India. That is, he was expecting a problem. He changed his outlook on India to negative from stable.

Then the analysts said that there is not much worry because the economy will pick up and Moody's mood will also improve rather than deteriorate. But now this expectation is proving to be far-fetched. And the matter of concern is that even after dropping the rating, Moody's has kept its outlook negative. This simply means that he is afraid of worsening the situation from here.

It is also important to take a look at the reasons that Moody's has cited for dropping ratings. According to him, the work of implementing economic reforms in the country since 2017 has been very slow. For a long time, the pace of growth in economic growth ie GDP growth is looking weak. The condition of the treasury of the governments is deteriorating, the condition of both the central and state governments. And there is increasing stress or tension in India's financial sector. Stress here means the risk of debt not being returned or imposed or returned.

And the outlook worsening means that the agency is seeing a number of threats linked together in India's economy and financial structure, due to which the Government of India's financial situation may be weakened even more than what the agency is currently anticipating.

And the most dangerous or worrisome thing is that the economic crisis arising out of Corona is not at all the reason for this downgrade of Moody's. He says that this epidemic has only magnified the dangers which were already flourishing in the Indian economy. Seeing these dangers, Moody's changed its outlook last year.

It should be remembered here that two years before that in November 2017, Moody's had raised India's credit rating. At that time, he hoped that some important economic reforms would be implemented in India, which would gradually strengthen the economic condition of the country. But now he complains that since that time the pace of reforms has also been slow and whatever has happened does not show much effect.

Now it is important to understand what is the harm of falling rating and its effect? This is also added when deciding ratings.

The Government of India and the State Governments borrow from many international agencies. Moody's says that even before the Corona crisis, the debt of governments was seventy-two percent of the country's GDP, and now in the changed situation i.e. after the Corona crisis, when governments are needing more money for expenditure, it is estimated that This burden can increase to 84% of GDP.

You should calculate your budget. When you go to take a loan from a bank for a house or a car, the bank officer says that the EMI of all your debts should not exceed forty percent of your earnings in total. If you want to take more loan than this, then you get a private bank or an NBFC who gives you a loan at a higher rate than the market rate. There are also some private financiers who give personal loans to the people of trouble, who charge interest from three to four times and the takers get stuck in bigger trouble than before.

Similarly, when a country issues a bond or wants to borrow directly after a rating falls, it has to pay a higher interest because it is considered a risky task to lend it. As the credit rating of the country falls, the maximum rating of all the companies of the country becomes the same. According to any rating agency, the rating of any private or government company cannot be above the sovereign rating of that country. That is, it becomes difficult and expensive for private companies to raise debt. Those whose bonds or debentures are already in the market, their prices fall and the pressure on them to return the money increases.

Now where India's rating has reached, it is at the bottom of the investment grade. That is, international financial institutions can invest in it right now. But if this rating falls below this, many of the big financial institutions around the world will be forced to immediately withdraw the money of the government of India or the bonds of Indian companies, or at a paltry price. Sell ​​in the market. This is because it is clear to these fund managers that they will not invest in any instrument below the investment grade.

After this some funds are invested, but they are just like money lenders. In this situation, countries get trapped in debt. That is why it is a matter of great concern to drop this rating.

However, there is another aspect of the coin. At this time, if the government started curbing spending in the concern of rating, then it will be very difficult to get the economy back on track. That means a well on one side and a ditch on the other side. But many experts are giving the opinion that the government should leave the worry of ratings for some time and revive the economy with full vigor and once the economy runs, it will not take much time to improve the rating.

Moody's also predicts that India's economy will show a strong boom next year after a fall of nearly four per cent in this financial year. Still, he is afraid that there will be trouble for many years ahead, that is why his outlook is weak. Now if the government does something that the picture is reversed, then this attitude will change automatically.

(Click here for Android APP of IBTN. You can follow us on facebook and Twitter)

Share This News

About sharing