In yet another boost to Narendra Modi-led government, close on the heels of securing a respectable slot in the ‘ease of doing business’ rankings, India got its first credit rating upgrade in over 13 years from global rating firm Moody’s Investor Service. While India, now at Baa2, is still behind China, its gap from the economic powerhouse of a neighbour has certainly shrunk to four notches. Notably, the gap between India and China had been reduced to five notches earlier this year when Moody’s cut China’s sovereign rating to A1 in May. However, this time India can boast of closing the gap on its own merit, and not because of the other party’s demerits. Moody’s last upgraded India’s credit rating in 2004.
Today, Moody’s raised India’s sovereign credit rating by one notch to Baa2 from the lowest investment grade of Baa3, saying that the reforms being pushed through by Narendra Modi’s government will help stabilise rising levels of debt. Today’s rating upgrade puts India in line with the Philippines and Italy.
India had long pitched for upgrading its sovereign credit ratings, and had repeatedly slammed ratings agencies for their inconsistent treatment while rating India and China. Earlier, Chief Economic Advisor Arvind Subramanian had contested that they have consistently refused to upgrade India’s sovereign rating despite significant improvement in economic fundamentals over the years. At the same time, he had blamed the ratings agencies for favouring China, even upgrading it, regardless of the country’s deteriorating fundamentals.
But he stood vindicated in May when Moody’s finally downgraded China’s sovereign rating by one-notch, bringing the giant down to a ‘low credit risk’ profile from ‘very low credit risk’ profile; and again in September, when S&P too downgraded China’s rating to A+ from AA-, saying that a prolonged period of strong credit growth had increased economic and financial risks.
On the other hand, India, despite trying hard to make its case, could not secure a sovereign credit rating upgrade. Three well-known ratings agencies, Standard & Poor’s, Fitch and Moody’s did not changed their ratings on India for at least over a decade. Before today, Moody’s kept its Baa3 rating on India since January 2004; Fitch has kept India at the lowest investment grade rating of BBB- since August 2006; while S&P has maintained its BBB- rating on India since January 2007.
But now, with the giant Chinese sovereign downgraded to A1, and India upgraded to Baa2, led by Prime Minister Narendra Modi’s transformational economic reforms programmes, the gap is down to four notches from six notches at the beginning of this year. Moody’s said today that economic reforms such as GST, Aadhaar-linking, PSU bank reforms, and so on will lead to better debt position.