The current slowdown in the Indian economy is unlikely to alter the country's credit rating, although rising domestic interest rates and an uncertain global economic environment could dampen India's near-term GDP growth, according to ratings agency Moody's.
"India's medium-to-long-term economic potential continues to be buoyed by its demographic profile, robust savings and investment rates and rising international competitiveness of its corporations," said an official release on Monday by the agency.
"Given the aggressive hikes in policy rates by the central bank and the fact that on an average, it takes two quarters for bank lending rates to transmit to investment activity, we expect the investment cycle to gradually bottom out by the end of FY12. Global conditions are also expected to act as a drag on growth," it said.
Moody's also issued a positive outlook on government's rupee debt, which indicates that it is primed for an upgrade because of the centre's efforts to develop the market for these bonds.
In its statement, Moody's said that it would consider raising Indian government's local debt rating to 'Baa3' which is the same level as the rating for government's foreign currently debt. This would be subject to incremental steps towards fiscal consolidation which means that the government would need to spend within its means.
The report is significant at a time when global research firms are toning down their optimism on India's growth prospects. In a report last week, Goldman Sachs said, "For FY12, we maintain our real GDP growth forecast at 7.3 per cent against the consensus forecast of 7.7 per cent."