New Delhi: Rating agency Moody’s on Friday upgraded India's sovereign credit rating on the optimism that the recent reforms measures introduced by the Modi government would spur economic growth. Baa2 rating means investment grade with moderate credit risk, which is two notches above the junk grade. Baa3 rating was the lowest investment grade — just a notch above ‘junk’ status.
The agency had last upgraded India in 2004. It had in 2015 changed rating outlook to ‘positive’ from ‘stable’. Now, all eyes will be on other rating agencies — S&P and Fitch Ratings — will follow Moody’s lead. “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,” Moody’s said in a statement.
While India’s high debt burden remains a constraint on the country’s credit profile, the ratings agency said it believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios. Moody’s counted the GST, measures to address non-performing loans in the banking system, demonetisation, Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) as key reforms undertaken by the Modi government.
“Most of these measures will take time for their impact to be seen, and some, such as the GST and demonetisation, have undermined growth over the near term. However, as disruption fades, assisted by the recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5 per cent in FY18, with similarly robust levels of growth from FY19 onward,” it said.
Long term, India’s growth potential is significantly higher than most other Baa-rated sovereigns, it added. “Moody’s believes that the government’s reforms will improve the business climate, enhance productivity, attract more investment and put India on a higher growth trajectory. Moody’s remains bullish on reforms done by the government and is confident of India’s growth potential,” said BJP president Amit Shah.
Meanwhile, Congress communications in-charge Randeep Surjewala sought to downplay the rating upgrade, saying the same agency had miscalculated US subprime mortgages before the economic meltdown. “After destroying India’s economy, the Modi government is clutching at straws to claim lost credibility,” he tweeted.
