Moody’s upgrade of India’s sovereign credit rating was a shot in Prime Minister Narendra Modi’s arm, welcomed by many and cheered by most, but the two other big rating agencies — Fitch and S&P — may not follow suit, at least not anytime soon. 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. 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.
However, concerned over the rise in international oil prices and fiscal slippages, the other two of the ‘Big Three credit rating agencies’ are not likely to upgrade India’s ratings. According to DBS group, the rating upgrade has come at a time when implementation of reforms, a subdued rural sector and weak investment growth has slowed economic growth.
“A reversal in low oil prices have raised risks to the economy’s fiscal, inflation and current account dynamics. We don’t think the other two global rating agencies – Fitch and S&P– will follow-up in a hurry, based on their cautious rhetoric, mainly drawing attention to the weak fiscal (state and central government),” DBS Group said in a note.
Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets in Hong Kong questioned the timing of the upgradation, saying that it has come at a time when crude oil prices are rising and concern over fiscal slippages is seen making matters worse policymakers already grappling with slowing economic growth. “The timing is a surprise given concerns regarding the fiscal metrics right now,” said Sue Trinh.
Meanwhile, Standard & Poor’s Financial Services declined to comment on Moody’s ratings but maintained that India has a weak fiscal position which needs to be addressed, according to ET Now. Some market participants also questioned the timing of the move, according to Reuters. “The timing is little dicey for the upgrade given that there are a lot of concerns over government’s fiscal discipline,” said a foreign bank dealer, adding he did not expect other agencies to follow Moody’s.
India had long pitched for upgrading its sovereign credit ratings, and had repeatedly slammed rating 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 rating agencies for favouring China, even upgrading it, regardless of the country’s deteriorating fundamentals.
