Moody's India upgrade: Will continue reforms, says FM

Arun Jaitley

The rating agency upgraded the Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive.

As such, an upgrade of the sovereign rating also drove an upgrade of the bank's BCA and ratings.

The "Baa3" rating was the lowest investment grade - just a notch above "junk" status.

"Moody's has upgraded the government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive", the global rating agency said in a release on Friday, adding that the government's wide-ranging economic and institutional reforms will improve the business climate and foster strong and sustainable growth.

Jaitley reiterated the government's commitment to structural reforms and said fiscal prudence will be maintained. He said the upgrade has not happened in isolation and for the last three years the India has been the fastest growing major economy.

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All Indian markets including stocks, bonds and rupee rallied on the ratings upgrade.

Radhika Rao, an economist at DBS, said implementation of reforms, a subdued rural sector and weak investment have slowed economic growth while rising oil prices have raised the risks. However, the other two global rating agencies - Fitch and Standard & Poor's - maintain a BBB- rating with a stable outlook for India. Moody's had last upgraded the sovereign ratings of the country to Baa3 in 2004.

It cautioned however that high-debt burden remains a constraint on the country's credit profile.

Although Moody's acknowledged that the Indian economy has taken a beating as a result of the goods and service tax (GST) and demonetisation, it reckoned that both would turn out to be worthwhile in the long run.

Moody's report says the recent reforms offer greater confidence that the high level of public indebtedness, which is India's principal credit weakness will remain stable, even in the event of shocks, and will ultimately decline. It also said that the formation of a Monetary Policy Committee (MPC) has already enhanced the transparency and efficiency in India.

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