Washington, DC – US based Moody’s, one of the big three credit ratings agencies, has upgraded India’s rating to Baa2 from Baa3, changing outlook to ‘stable’ from ‘positive.’
Explaining the move which came after 13 years, Moody’s said, “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.”
But it cautioned about the debt scenario in the South Asian country saying, “In the meantime, while India’s 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.”
The Indian business community reacted with a positive take and the domestic markets inched up a notch but fell back while the Indian currency Rupee strengthened slightly.
Commenting on the upgrade, Anand Mahindra, Chairman of Mahindra Group highlighted the importance in a couple of tweets as the development follows on the heels of Moody’s recent downgrade of China.
Striking a positive note, Mahindra said, “If we sustain the pace of reforms and spur consumption, the world’s attention will shift significantly to India. We can then fasten our seatbelts & prepare for the Indian economy’s long-awaited lift-off.”
Two tweets of Anand Mahindra, Chairman of Mahindra Group:
#MoodysUpgradesIndia The upgrade fundamentally applauds major reforms such as GST, Bank recapitalisation & cheers the lower risk of India’s debt burden increasing. But we must see it as a signal that the groundwork has been laid for robust growth in GDP (1/2)
#MoodysUpgradesIndia Significant that Moodys recently downgraded China. If we sustain the pace of reforms & spur consumption, the world’s attention will shift significantly to India. We can then fasten our seatbelts & prepare for the Indian economy’s long-awaited lift-off (2/2)
Indian Railway and Coal Federal Minister Piyush Goyal promised to the government would stay on the path of good governance and focus on effective delivery to people.
In a tweet, Goyal welcomed the upgrade, saying, “Recognising India’s growth enhancing reforms under PM @narendramodi, Moody’s has upgraded India’s sovereign rating for the first time since 2004. Entire world is recognising “Sabka Saath, Sabka Vikas.”
Welcoming the move, Indian Prime Minister Modi’s office labeled it as a vote of confidence in the government’s fiscal policies. It tweeted: “Moody’s believes that the @narendramodi Government’s reforms will improve business climate, enhance productivity, stimulate foreign and domestic investment, and ultimately foster strong and sustainable growth.”
Indian Federal Finance Minister Arun Jaitley listed the reforms being implemented in India. Addressing an investor roundtable in Singapore during a two day visit this week, Jaitley said, “The present government has implemented a slew of economic reforms one after the other, including the Goods and Services Tax (GST) roll-out, introduction of Insolvency and Bankruptcy Code (IBC) and the recapitalisation package for the Public Sector Banks (PSBs).”
A recent leap by India of 30 spots to the 100th rank in the World Bank’s Ease of Doing Business report for 2018 is also seen as a catalyst for the credit agency upgrade. The World Bank ranking put a stamp of approval from the international financial body affirming the country’s efforts to reform and streamline the economy.
India’s ruling party, the Modi led Bhartiya Janata Party (BJP), got a political boost as well as it faces state level Assembly elections in Gujarat are next month.
Credit rating agencies, in essence, rate a country on the strength of its economy. More specifically, they score governments (or large companies) on how likely they are to pay back their debt. A rating affects how much it costs governments to borrow money in the international financial markets. In theory, a high credit rating means a lower interest rate (and vice versa).