International rating agency Moody's on Tuesday said the bleeding rupee, the twin deficits and weaker growth are already factored in the current Baa3 sovereign rating, and thus do not accentuate already weak fundamentals of the country.
"While the current rupee depreciation may be a new development, the factors that underpin it are not, and have been incorporated into the Baa3 rating," Atsi Sheth, Moody's Investors Service vice-president and senior credit officer at its sovereign risks group, said in a note on Tuesday.
This is because the current sovereign rating of Baa3 incorporates the macroeconomic challenges of weaker growth, the steep plunge of the rupee and the twin deficits, Sheth said.
She also pointed out that even when the going was good for the country on the growth front, while averaging at 7-10 per cent, Moody's did not revise its rating outlook considering the weak fundamentals in terms of large government deficit and public debt, coupled with poor infrastructure.
Moody's became the first rating agency to retain the sovereign rating of Baa3 for the country after the rupee dived below 63 to the dollar, on Monday.
It can be noted that Moody's is the only agency that has a stable outlook on the country's Baa3 sovereign rating, while others hold a BBB- rating with a negative outlook.
Citing lower-than-anticipated growth and a steep fall in the rupee, which lost 17.5 per cent as of today since the beginning of the fiscal, Sheth said it will be ‘very challenging’ for the government to meet fiscal deficit target of 4.8
The rupee plunged new lows in early trade on Tuesday to 64.13 to the dollar, and was trading at 63.63 to at 1410 hours.
Sheth further said the problem the country now faces are a reflection of the current global growth and financial environment.
"What we are seeing now is that, as international growth and financial environment has turned less benign than it was in the last decade, India's long-standing macroeconomic challenges are revealed in weaker growth, current account and currency metrics.
"However, the credit analysis that underpins our rating for India has incorporated these long-standing challenges, and they were a constraint on the rating--that is, they prevented the rating from moving higher-- even when growth was in the 7-10 per cent range," Sheth said.
She further said specifically, Moody's has assessed the low financial strength of the government due to high deficit and debt.
"Moreover, despite the economy being much larger relative to the global average and its average growth rate, savings rate and investment rates being higher than the emerging market average, we have assessed the country's economic strength as 'moderate', reflecting the infrastructure deficit, recurrent inflation and policy uncertainty which constrain potential growth as well as foreign investment," she added.