Image for representational purposes only. U.S. President Donald Trump’s steep 50% tariffs on Indian imports could severely undermine India’s manufacturing ambitions and slow economic growth, Moody’s Ratings said.
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Moody’s corporate headquarters in New York. File
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Increasing foreign investment limit in the insurance sector to 100% from 74% is likely to attract more global players in the growing Indian insurance market, Moody’s Ratings said on Tuesday (February 4, 2025).

Additionally, strong premium growth is expected to boost profitability of the sector.

Currently, many foreign insurers are present in the country through joint ventures and could seek to increase their ownership stakes in their Indian affiliates following this change in regulation.

“We view foreign investment as credit positive because it increases product innovation. The presence of foreign stakeholders also brings benefits in the areas of capital adequacy, financial flexibility and governance standards,” Moody’s Ratings said in a statement.

Presenting Budget 2025-26, Finance Minister Nirmala Sitharaman proposed to raise the foreign investment limit to 100% from 74% in the insurance sector as part of new-generation financial sector reforms.

Moreover, Moody’s believes that the reduction in personal income tax will have positive trickle-down effects for the insurance sector.

“Increased levels of disposable income in the middle-class segment, the insurance sector’s largest target market, bodes particularly well for health insurance, given increasing awareness around well-being and protection in the post-COVID era,” it added.

These changes will further boost the Indian insurance industry’s growth prospects, which are already favourable.

In the budget, Sitharaman announced an increase in the personal income tax threshold below which taxpayers owe no tax to Rs 12 lakh, from Rs 7 lakh, as well as a rejig in tax brackets that would help those earning higher than that save up to Rs 1.1 lakh.

Moody’s said that strong economic growth supports average household incomes and increasing demand as a result of consumers’ increasing risk awareness and the steady digitalization of the Indian economy, which facilitates the distribution and sale of insurance products.

Indian insurers’ total premium revenue rose 16 per cent to Rs 9.2 lakh crore in the first eight months of fiscal 2024-25, driven by a 21 per cent increase in health insurance and an 18 per cent increase in new business written in the life sector. This marked an acceleration from fiscal 2023-24, when premiums were up 8 per cent  year-on-year to Rs 11.2 lakh crore.

On fiscal consolidation, Moody’s said the budget signalled “a slowing pace of fiscal consolidation as focus shifts to reinforcing growth”.

The planned cuts to personal income tax rates will bolster middle-class spending power and consumption, which is credit positive for many corporates and the financial sector.

However, the resulting foregone revenue will slow the pace of the country’s fiscal consolidation even as total spending declines as a share of GDP. Moreover, the proportion of spending allocated to debt servicing continues to increase.

The Finance Minister pegged the fiscal deficit for FY25 at 4.8 per cent of GDP and 4.4 per cent for FY26.

Moody’s Ratings has affirmed the ratings of seven Adani Group companies from ‘stable’ to ‘negative’. Earlier, Fitch Ratings also put the firms on a negative rating watch. File
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Moody’s Ratings has on Tuesday (November 26, 2024) affirmed the ratings of seven Adani Group companies from ‘stable’ to ‘negative’. In a statement the global rating firm said “At the same time, we have changed the outlook on all seven issuers to negative from stable.”

Earlier on Tuesday (November 26, 2024) Fitch Ratings also put Adani group firms on a negative rating watch.

The seven affected issuers are:

1. Adani Green Energy Limited Restricted Group (AGEL RG-1), which comprises Adani Green Energy (UP) Limited; Parampujya Solar Energy Private Limited; Prayatna Developers Private Limited, 2. Adani Green Energy Limited Restricted Group (AGEL RG-2), which comprises Wardha Solar (Maharashtra) Private Limited, Kodangal Solar Parks Private Limited and Adani Renewable Energy (Rj) Limited, 3. Adani Transmission Step-One Limited (ATSOL), Adani Transmission Restricted Group 1 (AESL RG1), which comprises Barmer Power Transmission Service Limited; Raipur-Rajnandgaon-Warora Transmission Ltd; Sipat Transmission Limited; Thar Power Transmission Service Limited; Hadoti Power Transmission Service Limited; Chhattisgarh-WR Transmission Limited, and 5. Adani Electricity Mumbai Limited (AEML).

Adani Ports and Special Economic Zone Limited (APSEZ) and Adani International Container Terminal Private Ltd (AICTPL) have also been subjected to an outlook change from stable to negative, Moody’s said.

Moody’s said its rating actions follow the indictment of Adani Green Energy Ltd’s (AGEL) chairman Gautam Adani and several senior management team members by the US Attorney’s Office in a criminal case and the filing of charges by the US Securities and Exchange Commission (SEC) in a civil case. The charges and allegations include: (1) bribery of Indian government officials, (2) securities and wire fraud, (3) conspiracy to violate the US Foreign Corrupt Practices Act and obstruct justice, (4) false statements made in AGEL’s annual reports, and (5) false statements made to the US government in relation to its investigation into the group.

Identifying governance risks as material for its rating action, Moody’s said the negative outlook considers that this indictment of Mr. Adani and other senior Adani executives “will likely weaken Adani Group’s access to funding and increase its capital costs” and recognises “the possibility of broader weaknesses in the governance structure across the rated Adani group entities as well as potential operational disruptions, including on their capital spending plans, while legal proceedings are going”.

“Although the allegations and the charges made by US Attorney’s Office and SEC pertain to AGEL’s chairman and senior management team members, we believe they could have a broader credit impact on all rated Adani Group issuers, given Gautam Adani’s prominent role as chairman of each of the rated entities or their parent companies as well as the controlling shareholder,” it reasoned.

The firm said an upgrade of these firms’ ratings is unlikely in the near term, given the negative outlook on all seven issuers. “However, we could change the rating outlooks to stable if legal proceedings conclude clearly with no material negative credit impact,” it noted, adding that the rated firms could also be subjected to downgrades based on specific risks relating to each business, including “access to funding” challenges that may arise for a couple of them.

Photo used for representation purpose only.
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Moody’s Ratings warned on June 25 that India’s growing water shortage and increasingly frequent climate change-driven natural disasters, amid a rise in consumption and rapid economic growth, can negatively affect the country’s sovereign credit strength.

Currently rated Baa3 stable by Moody’s, which denotes the lowest investment grade rating, India is susceptible to increasing water stress, and any drop in water supply, for which it is heavily reliant on monsoon rains, could disrupt operations in factories and farms. This, the firm said, would result in inflation in food prices and declines in income for affected businesses and communities, while sparking social unrest.

“This in turn can exacerbate volatility in India’s growth and undermine the economy’s ability to withstand shocks given that more than 40% of the country’s workforce is employed in agriculture,” Moody’s said in a note on environmental risks for India, identifying coal-fired power generation and steel production as the industrial sectors most vulnerable to water stress.

Moody’s stressed that India is one of the sovereigns that are most vulnerable to risks associated with water management and has the poorest access to basic services, including water, among G-20 economies.

India’s fast economic growth, accompanied by rapid industrialization and urbanization, is reducing water availability in the world’s most populous country. Average annual water availability per capita is likely to drop to 1,367 cubic meters by 2031 from an already-low 1,486 cubic meters in 2021, the firm said. A level below 1,700 cubic meters indicates water stress, with 1,000 cubic meters being the threshold for water scarcity, according to the Water Resources Ministry.

Pointing to the strain on water supply due to the current heat wave, with temperatures hitting 50 degrees Celsius in Delhi and northern Indian States, Moody’s said floods that are one of the most common types of natural disasters in India, also disrupt water infrastructure as it is insufficient to retain water from sudden large downpours.

“Monsoon rainfall is also lessening. The Indian Ocean warmed at a rate of 1.2 degrees Celsius per century during 1950-2020, and this will intensify to 1.7-3.8 degrees Celsius during 2020-2100, according to the Indian Institute of Tropical Meteorology. This is leading to a narrowing gap between land and sea temperatures and weakening the monsoon circulation because the higher the temperate of seawater relative to that of land, the weaker monsoon rainfall generally becomes,” the note said, adding that droughts are becoming more severe and frequent.

New Delhi:

Moody’s Ratings today said India’s growing water shortage can disrupt farm and industry sectors and is detrimental to the credit health of the sovereign as rising food inflation and decline in income may spark social unrest.

It said decreases in water supply can disrupt agricultural production and industrial operations, resulting in inflation in food prices and hence can be detrimental to credit health of sectors that heavily consume water, such as coal power generators and steel-makers.

India’s fast economic growth, accompanied by rapid industrialisation and urbanisation, will reduce water availability in the world’s most populous country, it said.

Also, the water stress is worsening because of an acceleration of climate change, which is causing increasingly intense and frequent extreme climate events such as droughts, heat waves and floods.

India is facing a growing water shortage as water consumption increases amid rapid economic growth and increasingly frequent natural disasters due to climate change, Moody’s said in a report on environmental risk facing India.

“This is detrimental to the credit health of the sovereign, as well as sectors that heavily consume water, such as coal power generators and steel-makers. In the long term, investment in water management can mitigate risks from potential water shortages,” Moody’s Ratings said in the report.

The report comes amid a growing water crisis faced by residents in some parts of the national capital, which has led to protests and political conflict. Delhi Water Minister Atishi, who began her hunger strike on June 21 over the issue, was hospitalised on Tuesday morning after her health deteriorated.

“Decreases in water supply can disrupt agricultural production and industrial operations, resulting in inflation in food prices and declines in income for affected businesses and communities, while sparking social unrest. This in turn can exacerbate volatility in India’s growth and undermine the economy’s ability to withstand shocks,” Moody’s said.

Quoting Ministry of Water Resources data, Moody’s said India’s average annual water availability per capita is likely to drop to 1,367 cubic meters by 2031 from an already-low 1,486 cubic meters in 2021 A level below 1,700 cubic meters indicates water stress, with 1,000 cubic meters being the threshold for water scarcity, according to the ministry.

Moody’s said a heat wave in June 2024, with temperatures hitting 50 degrees Celsius in Dehli and the northern Indian States, strained water supply. Floods, one of the most common types of natural disasters in India, disrupt water infrastructure, which is insufficient to retain water from sudden large downpours.

Floods in northern India and Cyclone Biparjoy in Gujarat in 2023 caused economic losses of USD 1.2-1.8 billion and damage to infrastructure, according to an estimate by the State Bank of India, it said.

Monsoon rainfall is also lessening. The Indian Ocean warmed at a rate of 1.2 degrees Celsius per century during 1950-2020, and this will intensify to 1.7-3.8 degrees Celsius during 2020-2100, according to the Indian Institute of Tropical Meteorology.

The amount of rainfall has decreased, while droughts have become more severe and frequent. In 2023, monsoon rainfall in India was 6 per cent less than the average for 1971-2020, and the country had an unprecedented rain shortfall in August that year. More than 70 per cent of rainfall in India is concentrated in June-September each year, according to the Moody’s report.

In the past, disruptions to agricultural production and a rise in inflationary pressure have led to increases in food subsidies that have contributed to India’s fiscal deficits. Food subsidies were budgeted at 4.3 per cent of central government expenditure for the current fiscal year (2024-25), one of the largest items in the budget, the report said.

Coal power generators and steel-makers heavily depend on water for production and growing water shortages can disrupt their operations and hamper their revenue generation, eroding their credit strength, it said.

Moody’s said the Indian government is investing in water infrastructure and making a push for the development of renewable energy. At the same time, heavy industrial consumers of water are looking to improve the efficiency of their water use. These efforts can help reduce water management risks for both the sovereign and the companies in the long term.

“The sustainable finance market in India is small but developing fast. It can provide companies and regional governments with a critical avenue to raise funds. Some states facing severe water shortages have used the sustainable finance market to raise funds for investment in water management,” Moody’s said.

Moody’s said Industrialisation and urbanisation will lead to intensifying competition for water among businesses and residents. India has significant room for industrialisation and urbanisation. Industry’s share of India’s GDP was 25.7 per cent in 2022, smaller than a G-20 emerging market median of 32 per cent, according to the World Bank. Also, residents in urban areas accounted for only 36 per cent of the country’s total population in 2022, a ratio that is likely to grow given that the G-20 emerging market median is 76 per cent.

According to a World Bank report on February 2023, over the last decade, the multilateral lender has supported the Indian government’s efforts to bring clean drinking water to rural communities. A range of projects with a total financing of USD 1.2 billion have benefitted over 20 million people.
 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)