View of Moody’s Credit rating agency
Global credit rating agency Moody’s Investors Services raised India’s sovereign rating for the first time in 13 years, citing the country’s high growth potential in the years to come, thanks to economic and institutional reforms.
What is the change in rating?
The agency upgraded the rating from Baa3 with a positive outlook to Baa2 with a stable outlook.
Borrowing obligations rated Baa2 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Baa3, by contrast, was the lowest investment grade rating.
A rebuttal to critics of government
For the government, the upgrade serves as a strong rebuttal for critics who have panned its handling of the economy — coming on the back of India’s rise in the World Bank’s ease of doing business index, and as a culmination of persistent efforts to get rating agencies to acknowledge India’s improved macroeconomic situation.
The financial markets reacted positively to the development, with the BSE Sensex rising 236 points and the rupee rising to Rs. 64.62 per dollar.
Reason for slow growth
Acknowledging that some steps such as the GST and demonetisation have ‘undermined’ growth in the near term as reflected by the slower GDP growth of 5.7% in the first quarter of 2017-18, Moody’s said it expects real GDP growth in India to moderate to 6.7% in this fiscal year. But the agency believes that the disruption effect of these reforms will fade as the government helps small and medium enterprises and exporters with compliance issues under the new indirect tax regime and growth will rise to 7.5% in 2018-19, and remain robust, thereafter.
What needs to be done?
Although the rating agency agreed that a lot remains to be done such as fixing the GST’s implementation challenges, weak private sector investment and the slow resolution of banks’ bad loans, Moody’s said it expects at least some of these issues to be addressed over time and will help further improve the Indian government’s effectiveness and overall institutional framework.
(News Adapted from The Hindu)