Rating upgrade recognises reforms by Modi govt, good news for industry


"Moody's has upgraded the government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive", the worldwide rating agency said in a release on Friday, adding that the government's wide-ranging economic and institutional reforms will improve the business climate and foster strong and sustainable growth. Government officials expressed hope that other credit rating agencies such as S&P and Fitch would follow suit. "Many who had doubts about India's reform process would now seriously introspect on their position", Finance Minister Arun Jaitley said in response.

Ranen Banerjee, partner - public finance and economics, PwC India, saw the enhancement of India's rating as "global confidence on the ability and intent of the government to adhere to the fiscal consolidation roadmap of narrowing the fiscal deficit and paring the debt stock". Moody's upgraded India's rating to to Baa2 from Baa3.

Anis Chakravarty, lead economist, Deloitte India, said Moody's rating upgrade "can be expected to bring buoyancy in equity and debt markets. Entire world is recognising "Sabka Saath, Sabka Vikas" Railways and Coal Minister Piyush Goyal said in a tweet.

Moody's upgrading India's sovereign credit rating is a recognition of a series of reforms undertaken by the government, Commerce and Industry Minister Suresh Prabhu said on Friday.

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The Government "is going to do what it has to do on the domestic front - employment growth, economic growth, reviving investment", said Chief Economic Advisor Arvind Subramanian. Moody's said the upgrade is underpinned by expectation that "continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for Government debt, and will likely contribute to a gradual decline in the general government debt burden". HDFC Chairman Deepak Parekh said, "I've always felt India's rating was far below than what it should be". Moody's counted the GST, measures to address non-performing loans in the banking system, demonetisation, Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) as key reforms undertaken by the Modi government.

"Other important measures which have yet to reach fruition include planned land and labour market reforms which rely to a great extent on cooperation with and between the states", it said.

According to Moody's, real GDP growth will moderate to 6.7 percent in the fiscal year ending in March 2018 and will rise to 7.5 percent in the next financial year with similarly robust levels of growth from 2019 onward. Earlier, the outlook was positive but on a lower rating, which indicated there were more chances of an upgrade than downgrade.