Moody's Analytics Reuters

Global rating agency Moody's said Monday that it was retaining the outlook for India's rating as stable and said slowdown in economic growth might be a short-term problem.

The agency said that many of India's economic problems such as policy hurdles and inflationary trends had been dogging the Indian economy for decades and the current Baa3 rating had already taken these factors into consideration.

It is maintaining its stable outlook on India's rating as various credit challenges - such as weak fiscal performance, tendency towards inflation and an uncertain investment policy environment - have characterized the Indian economy for decades, and are already incorporated into the current Baa3 rating,'' the investors' service said in a statement.

Meanwhile, the recent problems related to the slowdown in economic growth, slow investments and overall business sentiment among investors are temporary and unlikely to become permanent or even medium-term features of the Indian economy.

However, Moody's analysts expect that global and domestic factors, including potential shocks in agriculture, could keep India's growth below trend for the next few quarters.

In a report, titled Frequently Asked Questions about India's Sovereign Rating, Moody's makes it clear that the impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India's current rating.

It adds that India's government debt and fiscal deficit ratios have always been worse than those of similarly rated peers, adding that its own assessment of low government financial strength is based not merely on a comparison of ratios, but also on the underlying reasons for weak government finances. These lie in the role fiscal policy plays in maintaining social stability in a highly diverse, poor and unequal society, which limits government revenues and imposes demands on government expenditure.

In an earlier report, experts at Moody's said that significant Indian rupee depreciation is insignificant for sovereign credit. The direct effect of depreciation on the government's own debt repayment capacity is limited, especially since most of its foreign currency debt is owed to multilateral and bilateral creditors with low annual repayment requirements.