Global credit rating agency Moody’s Investors Service on Friday affirmed a “Baa3” rating for India and maintained a stable outlook for the country.

A “Baa3” rating is the lowest investment grade ranking as per Moody’s rating scale. Moody’s Investors Service maintained the rating despite Indian officials reportedly having pitched for an upgrade in discussions that were held in June.

The agency, however, listed rising sectarian tensions – including in particular the ongoing violence in Manipur – among risk factors for the country.

Moody’s Investor Service, in its report, expressed concern about the curtailment of civil society and political dissent, and said this led to a “weaker assessment” of political risk and the quality of institutions.

“One recent event illustrative of these trends is the eruption of unrest in the north-eastern state of Manipur – one of the most impoverished states in India – that has led to at least 150 deaths since May 2023, and underpinned a no-confidence vote on Prime Minister Narendra Modi in August, although this was ultimately unsuccessful,” the New York-based agency said.

Manipur has witnessed widespread violence between the Kuki and Meitei communities since May 3. Nearly 60,000 persons have been forced to flee their homes since the violence broke out. Opposition parties have blamed the Bharatiya Janata Party-led Centre and the state government for failing to control the violence.

India likely to grow rapidly by global standards: Moody’s

Justifying its “Baa3” rating and stable outlook, Moody’s Investors Service said that India’s economy is likely to continue to grow rapidly by international standards, even as it noted that potential growth has come down in the past 7-10 years.

“High GDP growth will contribute to gradually rising income levels and overall economic resilience. In turn, this will support gradual fiscal consolidation and government debt stabilization, albeit at high levels,” the agency said. “In addition, the financial sector continues to strengthen, alleviating much of the economic and contingent liability risks that had previously driven downward rating pressure.”

Moody’s Investors Service predicted that India’s economic growth would outpace all other G20 economies through at least the next two years. It added that this high growth would support a gradual increase in currently low income levels.

“The government’s ongoing emphasis on infrastructure development, mirrored in the increasing share of capital expenditure in the Union budget, has led to tangible improvements in logistics performance and the quality of trade and transport-related infrastructure,” it said.

The agency added that the implementation of digital public infrastructure contributed to enhancing the efficiency of public service delivery, while also boosting the formalisation of the economy and broadening the tax base.