One common thing Moody’s, S&P and Fitch say about Modi’s demonetisation

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Updated: Mar 15, 2018 12:03 PM

All the three global rating agencies Fitch, Moody's and S&P have a common observation on Narendra Modi-led government's demonetisation reform and its effects. We take a closer look.

The common thread in the notes of global rating agencies S&P, Moody’s and Fitch seem to suggest that the effects of demonetisation are now behind us. (Image: Reuters)

With a lot being said about Narendra Modi-led government’s note-ban in 2016, demonetisation is again in the news as global rating agency Fitch has pegged India’s economic growth to 7.3% in next fiscal saying that the influence of the one-off policy related factor seems to have subsided. Interestingly, the common thread in India notes of these global rating agencies seem to suggest that the effects of demonetisation are now behind us. We take a closer look at what these rating agencies have to say about demonetisation and its effects.


In its Global Economic Outlook report released yesterday, Fitch noted with regard to demonetisation that the note-ban reform’s influence of which was dragging growth so far has now waned, and the economy is in a path of recovery. Interestingly, Fitch had retained India’s credit rating at ‘BBB-’ in December-17 saying that growth had “repeatedly disappointed” in recent quarters, partly because of one-off factors including the demonetisation programme of November 2016 and introduction of GST.


While the global firm retained its India rating in November-17, citing low fiscal deficit and higher debt, S&P too noted that one-off factors such as demonetisation and the launch of the goods and services tax have led to some quarterly cooling in India’s high growth figures, and growth is slated to improve. “Nevertheless, the medium-term outlook for growth remains favourable, based on private consumption, an ambitious public infrastructure investment programme, and a bank restructuring plan that should help revive investment,” S&P had said.


When the firm upgraded India’s sovereign rating in November-17, Moody’s said that the reforms will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth. Taking specific note of demonetisation Moody’s said that the reform will take time for their impact to be seen it has undermined growth in the near term. The firm too noted that reforms being pushed through by Modi’s government will help stabilize rising levels of debt.

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