Moody's upgrades India's sovereign rating to Baa2 with stable outlook

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Moody's upgradation of India's economic rating can be interpreted as a recognition of the raft of structural reforms unleashed by the current government over the last 3-4 years. The agency had refused so far to upgrade India's ratings, raising doubts over country's debt levels and rising NPAs in the public sector banks.

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.

The rating upgrade augurs well for inflows into the local bond market, which has already witnessed solid inflows in 2017.

Moody's has assigned a stable outlook to SBI's DIFC branch.

In what can be taken as an endorsement of Prime Minister Narendra Modi's ongoing structural reforms and something that can boost investment sentiment, worldwide rating agency Moody's Investor Services, on Friday, lifted India's sovereign rating by a notch to Baa2 from Baa3 after 13 years.

The reforms will complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness, Moody's said.

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"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. "Entire world is recognising "Sabka Saath, Sabka Vikas" Railways and Coal Minister Piyush Goyal said in a tweet. Standard and Poor's, which still assigns the lowest investment grade to India with a stable outlook, said India needed to address its weak fiscal position, indicating upgrades would take time.

However, challenges with implementation of GST, ongoing weakness of private sector investment, slow progress with resolution of banking sector asset quality issues and lack of progress with land and labour reforms at the national level remain, it said.

For this improvement in the ranking, Moody's have mentioned the ongoing economic reforms initiated by the present Govt.; and this means that PM Modi's decisions regarding demonetization and GST has received an worldwide approval.

This period has, moreover, seen the country grow from a barely $ 620 billion to a $ 2.3 trillion economy, with its official foreign exchange reserves, too, soaring from some $ 110 billion to nearly $ 400 billion.

Moody's said it expects India's real GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018 from 7.1 per cent a year earlier. 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.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said.

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