Moody's upgrades India's sovereign rating, govt says it was long overdue

Moody's upgrades India's sovereign rating, govt says it was long overdue
After a gap of 13 years, global rating agency Moody’s Investor Service Friday upgraded India’s sovereign rating to Baa2 from its lowest of Baa3 and called Goods and Services Tax and demonetisation a landmark reform.

The government was quick to welcome the upgrade saying it was long overdue. 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 rating agency said in a statement.

Within minutes of upgrade the Government’s Chief Economic Advisor Arvind Subramanian tweeted, “Moody’s India rating upgrade. 1. Welcome. 2. Long overdue as our analysis here showed: http://indiabudget.nic.in/es2016-17/echap01.pdf …. 3. Recognition of reforms: GST, bank recap plan, Bankruptcy code & macro-stability. 4. Govt. focus on domestic objective”.

Stock markets gave a thumbs up to the rating upgrade with the Sensex opening 282 points higher at 33,388 and the Nifty rising 110 points. The rupee went up sharply against the dollar at 64.67.

Along with the rating upgrade, the Moody’s also changed the outlook for India’s rating to stable from positive. "Government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, including through demonetization and GST, both illustrate and should contribute to the further strengthening of India's institutions," the rating agency 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,” it said.

Moody’s has also raised India’s long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. Moody’s also expected the real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018.

“However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY2018 (2018-19), with similarly robust levels of growth from FY2019 (2019-20) onward. Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns,” it said.

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