Finance

India Inc. Hails Moody's Upgrade; Some Feel Fitch, S&P May Not Follow

India Inc. Hails Moody's Upgrade; Some Feel Fitch, S&P May Not Follow

Finance Minister Arun Jaitley termed the move as "belated recognition" of reforms undertaken by the Government and said the reform agenda will continue with emphasis on higher spending on infrastructure and in rural areas.

"A ratings upgrade will marginally benefit the Indian corporates to borrow at a cheaper rate". Maintaining that the upgrading was based on New Delhi's "wide-ranging programme of economic and institutional reforms", Moody's simultaneously changed the outlook for the country's rating to stable from positive and upgraded India's local and foreign currency issuer rating to Baa2 from Baa3.

The rating upgrade comes after a gap of nearly 14 years, which many economists said was long overdue.

Moody's Upgrades India's Ratings; Amit Shah Pats Modi's Back

Moody's Investors Service upgraded its ratings on India's sovereign bonds for the first time in almost 14 years on Friday, saying continued progress on economic and institutional reform will boost the country's growth potential. "The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness".

"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.

The government's move to recapitalise public sector banks (PSBs), along with the insolvency and bankruptcy code, would help address a key weakness in India's sovereign credit profile. Moody's had last upgraded India's rating to "Baa3" in 2004.

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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. "Coming on the back of significant improvement in the World Bank's ease of doing business index, this upgrade can also be expected to stimulate a more positive sentiment in the economy". HDFC Chairman Deepak Parekh said, "I've always felt India's rating was far below than what it should be".

By improving India's credit rating, Moody's has acknowledged the fact that the decisions were right, considering the future of India's economic growth. "In the economic survey presented earlier this year, the government criticised ratings agencies for not giving India an upgrade". Just before the Moody's upgrade happened, yields on 10-year government bonds had gone up from 6.46 to 7.06 per cent in the last four months, with the rupee also losing over 90 paise to the dollar.

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