In a big vote of confidence in the Modi government, rating agency Moody's today raised India's credit outlook to 'positive', while Fitch projected faster growth...
In a big vote of confidence in the Modi government, rating agency Moody’s today raised India’s credit outlook to ‘positive’, while Fitch projected faster growth — raising hopes for an upgrade in its sovereign rating in the next 12-18 months.
India’s sovereign rating by Moody’s stands at ‘Baa3’, the lowest investment grade and just a notch above ‘junk’ status, while it earlier had a ‘stable’ outlook for the country.
Fitch, which maintained its equivalent ‘BBB-‘ rating with stable outlook, on the other hand projected 8 per cent GDP growth for the current fiscal, higher than 7.8 per cent estimate of the RBI. It also indicated positive rating action if the government follows its fiscal consolidation road map.
Moody’s sovereign rating analyst Atsi Sheth told PTI, “Our positive rating outlook for India reflects our view that the probability has now increased that over the next 12-18 months India’s sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating.”
The sovereign rating and outlook of a country are often used by foreign investors and global bodies to gauge its investment climate. They also have a bearing on the cost of overseas borrowing by domestic companies.
On the outlook upgrade, Finance Minister Arun Jaitley said the action is “significant”, but the government has to do more to further boost economy.
“Moody’s has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we’ve to do more,” he tweeted.
The stock markets responded positively with the benchmark BSE Sensex rising 177 points to one-month high of 28,885.21.
Since 2004, Moody’s has rated India at Baa3 — at par with countries like Indonesia, Iceland and Turkey. Another agency S&P also has a similar rating for India and it recently upgraded its outlook from ‘negative’ to ‘stable’.
RBI Governor Raghuram Rajan said it is a “positive perception of what we have done over the past few quarters.”
He, however, cautioned that the government and regulators should not lose sight on what more needs to be done.
“We should not celebrate upgrades as we did not worry about downgrades. There are a lot of low-hanging fruits that need to be picked,” he added.
Upgrading the outlook from ‘stable’ to ‘positive’, Moody’s said that India has grown faster than many peers over the last decade and the actions of the policymakers should further boost economic and financial strength in coming years.
Moody’s, however, said that the Indian economy is still heavily exposed to external and financial shocks because of which it has maintained ‘Baa3’ rating for the country.
Referring to the policy initiatives of the Narendra Modi- government, Fitch said the reform agenda has brought “dynamism back to the Indian economy, after a couple of years of limited progress on the structural front”.
The agency raised its forecast for real GDP growth to 8 per cent for current financial year and further to 8.3 per cent in 2016-17, compared with 7.4 per cent GDP growth in 2014-15.
Chief Economic Advisor Arvind Subramanian said that the “upgrade of outlook proves that the government is moving in the right direction … It validates India’s commitment on fiscal discipline.
“There is an increasing probability that actions by the policymakers will enhance the country’s economic strength and, in turn, the sovereign’s financial strength over coming years,” Moody’s said.
“India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates,” it added.
Minister of State for Finance, Jayant Sinha said the NDA government has restored the faith of investors and rating agencies on the growth outlook of the Indian economy.
“Moody’s decision continues to reaffirm that rating agencies, global investors and our own domestic businesses have faith in India’s growth outlook and our financial strength as a sovereign,” he told reporters here.
Commenting on Moody’s action, Revenue Secretary Shaktikanta Das said it will improve confidence of investors in India.
Finance Secretary Rajiv Mehrishi said this development affirms the positive programmes and policies announced in the Budget. “I hope the next stage would be upgradation of the ratings itself.”