Moody's upgrade India's credit rating after 13 years

Moody's upgrade India's credit rating after 13 years

Moody's had last upgraded India's rating to "Baa3" in 2004. However, debt traders said the rally was unlikely to last beyond a few days, as the coming heavy bond supply and hawkish inflation outlook were unlikely to change soon.

The upswing in the key indices came after the United States credit rating agency Moody's upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa, while changing the outlook for the country's rating to stable from positive, and said its was based on the Indian government's "wide-ranging programme of economic and institutional reforms".

Sunil Bharti Mittal, founder and chairman, Bharti Enterprises, said Moody's action underlines the efficacy of the bold structural reforms undertaken by the the government in recent years. "We believe that the upgrade is a belated recognition of all our positive steps that have contributed to the strengthening of the Indian economy". But some economists said an upgrade from the other big rating agencies seemed unlikely. Ratings, he noted, are not causes for government action but are in fact the result of measures.

"After a gap of 13 years, global rating agency Moody's on Friday upgraded India's sovereign credit rating from its lowest investment grade to Baa2 and gave a thumbs up to two big-ticket reforms - demonetisation and GST â€" calling them remarkable.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said. "Baa3" was the lowest rating in the investment grade - just a notch above the "junk" status.

At a press conference held in Singapore earlier this week, Jaitley had said economic reforms may require government to deviate from the fiscal deficit targets.

"Many who had doubts in their minds about India's reform process would need to now seriously introspect on their thinking", said Jaitley, hours after news broke.

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He also refuted there was any link between the upgrade and the elections in Gujarat and Himachal Pradesh, and said stable reforms will not be possible if only election-oriented decisions are taken.

2/3 The path that Government has chosen for long term reforms and fiscal consolidation is well recognised by investors already. "The rating agency too has now confirmed it formally, which is welcome".

"Key elements of the reform program include the recently-introduced Goods and Services Tax (GST) which will, among other things, promote productivity by removing barriers to interstate trade; improvements to the monetary policy framework; measures to address the overhang of non-performing loans (NPLs) in the banking system; and measures such as demonetization, the Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system meant to reduce informality in the economy", the global credit rating agency has said in its statement.

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It, however, said the high public debt burden remains an important constraint on India's credit profile relative to its peers, notwithstanding the mitigating factors which support fiscal sustainability.

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