Rating upgrade recognises reforms by Modi govt, good news for industry

Rating upgrade recognises reforms by Modi govt, good news for industry

USA credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa, while changing the outlook for the country's rating to stable from positive, and said its was based on the Indian government's "wide-ranging programme of economic and institutional reforms".

President of industry chamber Ficci Pankaj Patel said the development underlines the fact that India is moving in the right direction. Jaitley said that the Moody's rating is an endorsement of the economic reforms introduced by the Prime Minister Narendra Modi led government.

Director General of another leading industry body CII Chandrajit Banerjee said: "The upgraded rating of Baa2 will enable lower cost of borrowing in global markets for Indian businesses and attract more foreign funds flows into India".

Chief Economic Advisor Arvind Subramanian, whose Economic Survey had a piece on the "poor standards" of the rating agencies, echoed these sentiments, noting that the upgrade was long overdue.

These measures increase the degree of formality in the economy, broaden the tax base (as with the GST), and promote expenditure efficiency through rationalisation of government schemes and better-targeted delivery (as with the DBT system) will support the expected, though very gradual, improvement in India's fiscal metrics over time, it said. The upgrading by the influential American credit rating agency comes after almost 13 years, during which time India has attracted cumulative foreign direct investment flows of about $ 250 billion and net portfolio investments of over $ 225 billion into its stock and debt markets. "The cost of foreign borrowings will automatically come down, which in itself is a big benefit for the country". Moody's has also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. Moody's had in January 2004 revised the rating on India to Baa3 from Ba1.

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Moody's expects real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018 (FY2017), but said in the longer term India's growth potential is significantly higher than most other Baa-rated sovereigns.

The 30-scrip Sensitive Index (Sensex) traded 329.40 points or 0.99 per cent higher during the mid-afternoon session. Economic Affairs Secretary Subhash Chandra Garg said the upgrade has recognised Government efforts on fiscal deficit, consolidation and debt control.

Upgradation of India's credit rating by Moody's is a big news, because it has been done after 14 years, and done at a time when business analysts and observers are severely questioning PM Modi's decisions to implement GST and ban 80% of currencies overnight.

This is unedited, unformatted feed from the Press Trust of India wire.

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