International rating agency Moody's has upgraded the India's local and foreign currency issuer ratings from Baa3 to Baa2, also changing the outlook on the rating to stable from positive. The agency has claimed the Modi government's implementation of several reform programmes to be the cause. The upgrade came after a gap of 13 years, with the last upgrade ironically also coming under the NDA-regime led by Atal Behari Vajpayee.
In a statement, the agency said, “Moody's believes that those (reforms) implemented to date 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. The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness.” The upgrade will affect the cost of international borrowing which will become cheaper for the Indian government and Indian corporates whose ratings are constrained by the sovereign rating. With Narendra Modi and his administration constantly under fire for GST and demonetisation, this news came as a welcome break.
Moody's said, “The decision to upgrade the ratings is underpinned by Moody's expectation that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term. 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.”
“Government efforts to reduce corruption, formalise economic activity and improve tax collection and administration, including through demonetisation and GST, both illustrate and should contribute to the further strengthening of India's institutions,” the agency said.
