1. Caution: Moody’s India upgrade welcome but here’s what could move the rating down

Caution: Moody’s India upgrade welcome but here’s what could move the rating down

While Moody’s first upgrade of India’s sovereign credit rating in 14 years to a notch above the lowest investment grade -- Baa2 -- is welcome, it makes the government’s job even harder. For, the rating upgrade doesn’t come without a warning label.

By: | Published: November 18, 2017 1:21 PM
India’s credit rating upgrade doesn’t come without warning. If India’s fiscal situation takes a turn for the worse, the credit rating may take a hit. (Image: Reuters)

It’s jubilation all over for Prime Minister Narendra Modi, Finance Minister Arun Jaitley and their Bharatiya Janata Party at large, with a little brooding from the usual quarters — the opposition, including the Left and Congress. Indeed, Moody’s first upgrade of India’s sovereign credit rating in 14 years to a notch above the lowest investment grade — Baa2 — is most welcome. It is a ringing endorsement of Narendra Modi’s economic policies and transformative reforms that the opposition has been drumming up as being messy and disruptive for over a year now.

Be it secretive demonetisation, hurriedly-implemented GST, privacy and safety concern evoking biometric linking programme, bankruptcy rules, bank recapitalisation, or any such, all have got a thumbs up from Moody’s in its upgrade of India’s sovereign issuer rating to its highest ever.

Yet, on another level, it makes the government’s job even harder. For, the rating upgrade doesn’t come without a warning label. If India’s fiscal situation takes a turn for the worse, all those transformative reforms notwithstanding, the credit rating may take a hit and may slide back to where it was.

“A material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating,” Moody’s Investors Service said on Friday, along with the announcement to upgrade the credit rating. “The rating could also face downward pressure if the health of the banking system deteriorated significantly or external vulnerability increased sharply,” Moody’s added in the statement.

Fiscal prudence

This means that Finance Minister Jaitley, who was toying with the idea of taking some liberty with budget goals and fiscal prudence as recently as Thursday, has lesser room to wriggle out of the government’s fiscal deficit commitment. On Thursday, the government was talking about easing its budget goals as sweeping policy changes hurt growth and revenue, Bloomberg news reported.

“Challenges arising from structural reforms could change the glide path,” Bloomberg news quoted Arun Jaitley as telling investors in Singapore on Thursday. He was referring to the plan to limit fiscal deficit to 3.2% of GDP in the current financial year 2017-18, and to a 10-year low of 3% in the next year 2018-19.

That flexibility has evaporated now, if Modi-Jaitley duo wants to continue to boast about the rating upgrade, for which this government, and even the previous one, lobbied very hard all through the years. “We’ll continue to maintain the glide path,” Arun Jaitley said at on Friday in just about a u-turn to his Thursday’s statement. “The upgrade is a recognition of the fact that India continues to follow a path of fiscal prudence.”

  1. K
    kushal kumar
    Nov 20, 2017 at 8:05 am
    The opinion of former PM Manmohan Singh reported in media on 18 November 2017 that India’s economy is not out of woods is something not entirely different from this Vedic astrology writer’s alerts to India for more care and appropriate strategy in article - “ Astrologically speaking , some highlights for India in coming year 2018” - published in theindiapost on 19 October 2017. The text relevant to the point in the said article reads as -“ Economy may pass through tense times on more than one front except art , entertainment , cinema, creative or innovative talents which may contribute whatsoever to the economy”.
    Reply
    1. S
      sunder
      Nov 18, 2017 at 2:50 pm
      Yes it can come down if Italian pros ute comes to power with an impotent PM but it will not happen so you can keep waiting .Yes I forgot.Dont publish it is for you only bhadwa.
      Reply
      1. E
        Editor
        Nov 18, 2017 at 2:45 pm
        When did you last lick the Italian anus?Dont lick now .She has cancer and it is contagious.
        Reply
        1. E
          Editor
          Nov 18, 2017 at 2:43 pm
          Are you in pros ute Sonia's or ?That will decide the rating of bhadwa Congress.
          Reply
          1. Uday Barad
            Nov 18, 2017 at 2:12 pm
            Why FE is coming up with such assumptions and presumptions articles I really don't understand....!!! When any good news about Modi's government comes up FE always comes up speculative article creating doubts in readers....!!! This approach of FE is not at all a good journalism .....!!!
            Reply
            1. V
              Vasudev
              Nov 18, 2017 at 2:03 pm
              Present govt. is very much capable of countering the negativity. We should not behave like fear-mongering people. From the last 10 - 15 years, the inflation was in double digits, nobody had problem, which has come down to 3.2 now.
              Reply
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