Moody's morning surprise brought cheers to corporate leaders who hailed the move as reaffirmation of the government's reforms push
International rating agency Moody's Investors Service upgraded India's sovereign credit rating a notch for the first time in nearly 14 years on Friday. The US-based agency upped India's rating to Baa2 from Baa3, changing outlook to 'stable' from 'positive', seen as a boost to the Modi government's reform agenda. Moody's morning surprise brought cheers to corporate leaders who hailed the move as reaffirmation of the government's reforms push.
The new rating is one-level shift from the lowest investment-grade ranking and puts India in line with the Philippines and Italy.
"This is an overdue correction," said PM Modi's Chief Economic Adviser Arvind Subramanian, referring to the upgrade.
"This is a recognition of India's macro economic reforms. But it has also to be kept in mind that these are external factors. And the government will pursue its own reform agenda. And those will drive our economic development," he said.
The move to change the outlook on India’s rating to stable from positive will help India in attracting more foreign fund flows and corporates in tapping debt at lower rates abroad,
The decision to upgrade the ratings came amid Moody's expectations that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and 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.
Key elements of the government’s reform programme include the recently introduced 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 assets (NPA) in the banking system; and measures like demonetizing high-value currency, the Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system to reduce informality in the economy.
Other important measures that have yet to reach fruition include planned land and labour market reforms, which rely to a great extent on cooperation with and among states.
Some investors termed it a surprise given that India recently surrendered its status as the world's fastest-growing major economy amid sweeping policy change. The upgrade could prove to be a big win for ruling party BJP, which has faced increasing attacks about the economic slowdown before key elections in PM Modi's home state Gujarat next month.