Moody’s upgraded ratings on India’s sovereign bonds to Baa2 for the first time in nearly after 14 years on Friday, saying continued progress on economic and institutional reform, especially the implementation of the GST, will boost the country’s growth potential. What’s interesting to note here is that, in January 2004, when Moody’s had upgraded country’s rating it was the Atal Bihari Vajpayee government which was in power. Then, Moody’s said it was “reduction in external vulnerability, rising foreign investment, and vibrant economic growth” which led to an upgrade to Baa3.
Albeit, the upgrade was not easy to achieve. In 2015, Moody’s revised India’s outlook to “positive” from “stable”, but kept the ratings unchanged last year despite India lobbying for an upgrade on the basis of country’s declining debt burden. Although, the US-based rating agency indicated a rating upgrade if things continued to improve over 10-12 months.
Moody’s rating upgrade is a shot in the arm for the Narendra Modi government as it comes just a weeks after India leapfrogging to top 100 on World Bank’s Ease of Doing Business index. The agency said it was lifting India’s rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India’s credit profile were broadly balanced.
Moody’s said the recently-introduced goods and services tax (GST), a landmark reform that turned India’s 29 states into a single customs union for the first time, will boost productivity by removing barriers to inter-state trade. “In the meantime, while India’s high debt burden remains a constraint on the country’s credit profile, Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios,” the rating agency said in a statement.
Moody’s said it expects India’s real GDP growth to moderate to 6.7 percent in the fiscal year ending in March 2018 from 7.1 percent a year earlier. The agency also raised India’s local currency senior unsecured debt rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.