Here’s why Moody’s sees no change in India’s sovereign rating after government borrowing cut

By: | Published: January 18, 2018 3:58 PM

After the government on announced its decision to cut additional borrowing requirement to Rs 20,000 crore, global credit rating agency Moody’s Investor Service said that it will not affect India's sovereign rating given. We explore key reasons behind the same.

In November-17,  Moody’s upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. (Image: AP)

After the  government on announced its decision to cut additional borrowing requirement to Rs 20,000 crore, global credit rating agency Moody’s Investor Service said that it will not affect India’s sovereign rating given. In November-17,  Moody’s upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. Notably, Moody’s had revised the sovereign rating of India a notch above investment grade after a long gap of 14 years.

After the government announced additional borrowing cut, Marie Diron, Senior Vice President, Sovereign Risk Group at Moody’s Investors Service, told in an interview with CNBC TV18 that governments restructure their borrowing targets from time to time and the restructuring of the borrowing from Rs 50,000 crore to Rs 20,000 crore is a relatively small amount with respect to the size of India’s economy. “The reduction will not really impact our fiscal deficit target estimate for India and hence is not too relevant to our sovereign rating,” Marie Diron told the channel.

Interestingly, while Moody’s upgraded India’s rating, credit rating agency S&P kept its India rating unchanged at the lowest investment grade of BBB–, citing a sizeable fiscal deficit, high general government debt and low per capita income. Marie Diron added that Moody’s expects the budget deficit to be a little higher as the government calls for gradual fiscal consolidation.

Interestingly, Moody’s had warned that a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating. Marie Diron reiterated that revenue accretion from GST will happen gradually. “We forecast a 7.5 percent growth in the GDP, or even higher given the momentum acquired from incomes catching up and productivity seen from the a simplified tax structure,” she told the channel.

Moody’s has given a thumbs up to a slew of reforms from demonetisation, Aadhar-UID, GST and PSU bank recapitalisation. Moody’s says that GST will “promote productivity by removing barriers to interstate trade.”

In less than a month of announcing additional market borrowings of Rs 50,000 crore for the fiscal year ending March-18, the government announced on Wednesday that it has cut its requirement to Rs. 20,000 crore. Economics Affairs Secretary Subhash Chandra Garg tweeted, “Government has reassessed additional borrowing requirements taking note of revenue receipts and expenditure pattern. Requirement of additional borrowing being reduced from Rs 50000 crore as notified earlier to Rs 20000 crore.”

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