In a major boost for the Narendra Modi government, Moody’s, one of the major ratings agencies has upgraded India’s sovereign…
Prime Minister Narendra Modi (Photo: PIB)
In a major boost for the Narendra Modi government, Moody’s, one of the major ratings agencies has upgraded India’s sovereign ratings to Baa2 from Baa3 and has changed the outlook on the rating to stable from positive.
The upgrade is likely to have a positive rub-off effect on equities, rupee, and bonds, industry insiders said.
In an official note, Moody’s said the decision to upgrade India’s rating was based on the expectation that continued progress on economic reforms will enhance India’s high growth potential.
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“The decision to upgrade the ratings is underpinned by Moody’s 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 over the medium term,” Moody’s said in a statement.
According to Moody’s, reforms like Goods and Services Tax (GST), Aadhaar and direct benefit transfer schemes among others have played a key role in the improvement of India’s rating.
The global ratings agency, however, cautioned that high debt burden remains a constraint on the country’s credit profile.
“Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios,” it said.
The upgrade comes after a gap of 13 years as Moody’s had last upgraded India’s rating to ‘Baa3’ back in 2004. In 2015, the rating outlook was changed to ‘positive’ from ‘stable’.
The ‘Baa3’ rating was the lowest investment grade — just a notch above ‘junk’ status.
The upgrade will be a shot in the arm for Prime Minister Narendra Modi who has come under fire for the fallout of GST and demonetisation on business.
However, Moody’s viewed demonetisation positively and said that government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, through demonetization and GST, should contribute to strengthening of India’s institutions.
(With inputs from agencies)
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