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Last Updated Saturday March 17 2018 03:23 AM IST

Moody's upgrades India's sovereign rating after 13 years, boosts sentiments

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jaitley Union finance minister Arun Jaitley said that with the introduction of GST, market barriers had been removed. Photo: IANS

New Delhi: Boosting investor sentiments, US credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years, a development finance minister Arun Jaitley said was 'an extremely encouraging' global recognition of the structural reforms of last three years. India Inc too lauded it.

Maintaining that the upgrading was based on New Delhi's "wide-ranging programme of economic and institutional reforms", Moody's simultaneously changed the outlook for the country's rating to stable from positive and upgraded India's local and foreign currency issuer rating to Baa2 from Baa3.

"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," a Moody's Investor Service release said.

"Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios."

The revision of the sovereign rating of India a notch above investment grade also lifted investors' sentiments at the Indian equity markets. The S&P BSE Sensex closed the day's trade 235.98 points up and NSE Nifty50 68.85 points up.

"Those (reforms) implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment and ultimately fostering strong and sustainable growth," the agency said.

But Moody's lowered India's growth projection for the current fiscal because of the impact of demonetization and the Goods and Services Tax (GST).

"Reforms such as the GST and demonetization have undermined growth over the near term," the agency said, adding that it expects real GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018.

However, as disruption fades, assisted by recent government measures to support small industries and exporters on GST, real GDP growth will rise to 7.5 per cent next year, with similarly robust levels of growth from fiscal 2019.

According to Moody's, though the high Indian debt burden remains a constraint on the country's credit profile, its longer term growth potential is significantly higher than most other Baa-rated sovereigns.

Reacting to the upgrade, Jaitley told reporters: "It is a belated recognition of all the positive steps taken in the last few years. It is a recognition and an endorsement of the process that India has undergone in the last three-four years where a number of structural reforms have placed India on a higher growth trajectory."

He said the government had shown fiscal prudence through a series of steps in the last few years like demonetization, introduction of Aadhaar, Insolvency and Bankruptcy Code, recapitalization of public sector banks and smooth transition to the GST that have led to better economic situation.

Jaitely said: "Smooth transition of GST is universally recognized as a landmark reform in Indian tax structure. All these steps which constituted major reforms are directional in nature. All steps taken in the last few years had a roadmap.

While the government was upbeat, the Congress said both Modi and Moody's had "failed to gauge the mood of the nation."

"After destroying India's economy, the Modi government was clutching at straws to claim lost credibility. Modiji and Moody's 'Jodi' have failed," Congress spokesperson Randeep Singh Surjewala tweeted.

However, India Inc cheered the ratings upgrade.

"Moody's upgrade of India's rating is a reaffirmation of the various reform measures undertaken by the government over the last three to four years and we welcome this move", said FICCI president Pankaj R. Patel.

"Rating upgrade by Moody's Investors Service on India's sovereign bonds would make a huge a difference to India Inc's capacity to tap the global financial markets at very competitive rates," said Assocham secretary general D.S. Rawat.

Read: Latest Business news | Here's how to find out GST irregularities on bills

The opinions expressed here do not reflect those of Malayala Manorama. Legal action under the IT Act will be taken against those making derogatory and obscene statements.

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