Moody boost for Modi: India's sovereign bond rating raised

Moody's upgrades India's rating But is it too early to celebrate

Moody's Upgrades India's Ratings; Amit Shah Pats Modi's Back

Senior Bharatiya Janata Party leader Yashwant Sinha on Friday took a dig at the Narendra Modi government said that there should be a midnight ceremony in Parliament to celebrate Moody's upgrade of India's rating. Moody's said the upgrade is underpinned by 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".

A sovereign ratings upgrade of the Indian government's bonds and of some domestic industry majors from USA credit rating agency Moody's on Friday lifted the key Indian equity indices to their new intra-day record highs.

Moody's Investors Service on Friday upgraded India's sovereign rating after a gap of 13 years.

Moody's Investors Service has hailed wide-ranging economic and institutional reforms of the BJP government over the last three, citing them as the big reasons for the agency's first upgrade of India's sovereign rating in nearly 14 years.

The reforms will complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness, Moody's said.

The rating upgrade comes after a gap of nearly 14 years, which many economists said was long overdue.

This is India's first rating upgrade since 2004, when it was upgraded to Baa3 from Ba1.

"On the fiscal front, efforts to improve transparency and accountability, including through adoption of a new Fiscal Responsibility and Budget Management (FRBM) Act, are expected to enhance India's fiscal policy framework and strengthen policy credibility", it said. Radhika Rao, an economist at DBS, said implementation of reforms, a subdued rural sector and weak investment have slowed economic growth while rising oil prices have raised the risks.

Moody's said demonetisation and GST, along with other measures, will help reduce corruption, formalise economic activity, and improve tax collection and administration. The one-level step-up from the lowest investment-grade ranking puts India in the league of the Philippines and Italy.

According to Moody's, real GDP growth will moderate to 6.7 percent in the fiscal year ending in March 2018 and will rise to 7.5 percent in the next financial year with similarly robust levels of growth from 2019 onward. "In fact, always the question was why the rating upgrade wasn't happening", said Mr Kumar. "Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", it said. Last year, India lobbied hard with Moody's for an upgrade, but failed.

Ranen Banerjee, partner - public finance and economics, PwC India, saw the enhancement of India's rating as "global confidence on the ability and intent of the government to adhere to the fiscal consolidation roadmap of narrowing the fiscal deficit and paring the debt stock".

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