Friday, 17 November 2017

Moody's upgrades India's rating

  • International rating agency Moody's has upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. 
  • The rating agency has cited+ the government's implementation of its reform programme which includes introduction of the GST, Aadhaar system of biometric accounts and direct benefit transfer schemes and measures taken to address bad loans in the banking system.
  • The rating upgrade comes after a gap of 13 years - Moody's had last upgraded India's rating to 'Baa3' in 2004 during Vajpayee led NDA-regime.
  • The rating upgrade will reduce cost of international borrowing for Indian government and Indian corporates due to reduction in perceived credit risk. 
  • The move will also improve the sentiment in the equity markets.
  • These reforms implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and fostering strong and sustainable growth and improve its global competitiveness. The rating agency Moody's believes.
  • Some investors termed it a surprise given that India recently surrendered its status as the world’s fastest-growing major economy amid sweeping policy changes. 
  • The upgrade could prove to be a big win for the ruling party, which is facing increasing attacks about the economic slowdown before key elections in Modi’s home state next month and a national vote early 2019. There are several challenges for the economy, particularly a high debt burden and delayed labor and land acquisition reforms and little room for fiscal complacency, especially ahead of 2019 elections.

In Dec 2016 India's request for ratings upgrade was bluntly turned down by Moody's citing high debt burden, its low debt affordability and resolution of banking sector's bad loan problems. Moody's also stated that a ratings upgrade for India was some years away, depending on the progress on reforms. Between Dec 2016 and today (Nov 2017) ground situation has actually worsened but some reforms are under implementation and results are yet to be seen. Why Moody's hurriedly announced ratings upgrade is unknown. Today, India is facing plethora of problems due to reckless adventures by Modi impacting and destroying informal sector and agriculture sector which together contributes 45% of GDP and 80% of jobs. Improvement in economy prior to 2019 general elections is unlikely due to lack of fiscal space. Direct benefits of this ratings upgrade are confined to corporates and businesses immediately and trickle down benefits would reach common man after a while, in insignificant proportions.

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