After US-based agency Moody’s raised India’s sovereign rating today, NITI Aayog CEO Amitabh Kant indicated exactly what this move by the rating agency entailed. Earlier in the morning in what came as a big thumbs up for the Modi government, Moody’s Investors Service raised India’s sovereign rating to Baa2 from Baa3, changing outlook to ‘stable’ from ‘positive’. It also said that reforms will help stabilise rising levels of debt. This was the first time in over 13 years it has taken this step. The agency also added that growth prospects have improved with continued economic and institutional reforms. Kant, addressing reporters in the evening said, “This is a recognition of the vast number of reforms done by Indian the government.” To the question as to why it took so long to make this move, Kant said, “Moody’s have taken a while but now recognized that this government is committed to growth and reform.” Notably, the PM Modi led NDA government at the Centre has rolled out a number of initiatives including demonetisation and goods and services tax (GST).
On Friday, the State Bank of India in its ‘Ecowrap’ said that the bank believes India would not require to wait for 13 long years for the next Moody’s upgrade. “The government is firm and committed to adhere with the fiscal consolidation path,” said SBI’s report.
Earlier today, commenting on Moody’s ratings Finance Minister Arun Jaitley termed the move as “belated recognition.” Jaitley was one of the key architects in the GST and reforms were undertaken by the government and said the reform agenda will continue with emphasis on higher spending on infrastructure and in rural areas. Government officials expressed hope that other credit rating agencies such as S&P and Fitch would follow suit. While upgrading the rating, Moody’s cited reforms like the recently-introduced Goods and Services Tax (GST), improvements to the monetary policy framework, measures to clean up non-performing loans and efforts to bring more areas into the formal economy.
The one-level step-up from the lowest investment-grade ranking puts India in the league of the Philippines and Italy. India’s sovereign credit rating was last upgraded in January 2004 to Baa3 (from Ba1). ‘Baa3’ was the lowest rating in the investment grade — just a notch above the ‘junk’ status. Baa2 rating means investment grade with moderate credit risk, and is two notches above the junk grade. Moody’s had in 2015 changed rating outlook to ‘positive’ from ‘stable’.
The rating upgrade comes within weeks of the World Bank handing a 30-place jump to India on its ease of doing business ranking to place it at 100th rank. “We welcome (the upgrade) and believe that it is a belated recognition of all the positive steps taken in India in the last few years which have contributed to the strengthening of the Indian economy,” Jaitley said.
“Government was sure that structural reforms are important for the country and we were working in that direction, Moodys has just recognized it,” says Subhash Chandra Garg, Secretary, Department of Economic Affairs.
On those saying Moody’s ratings did not read country’s mood, he said, “These are internationally acknowledged independent agencies who are not interested in the country’s politics & the research they do is very in-depth.”