Livemint: April 09, 2015
New Delhi: Rating agency Moody’s Investors Service on Thursday gave a much-needed booster to the Narendra Modi government ahead of the prime minister’s visit to France, Germany and Canada by revising India’s sovereign credit rating outlook to positive from stable.
The outlook upgrade is a bet that the policy measures by the government will allow India’s growth to outperform that of its peers in the medium term and improve its macroeconomic, infrastructure and institutional profile.
However, the agency reiterated India’s sovereign credit rating at the lowest investment grade of Baa3, pointing out its weaker performance relative to peers on fiscal, inflation and infrastructure-related metrics.
The decision to upgrade the country’s rating outlook was taken at a meeting of the rating committee of Moody’s on 7 April. “The main points raised during the discussion were: The issuer’s economic fundamentals, including its economic strength, have materially increased. The issuer’s institutional strength/framework has materially increased. The issuer’s fiscal or financial strength, including its debt profile, has not materially changed,” the rating agency said in a statement.
Moody’s became the first rating agency to upgrade the country’s rating outlook. Currently, its peers Standard and Poor’s and Fitch Ratings have assigned stable grade to India’s rating outlook, which is one notch above negative grade.
The S&P, which had been threatening to further downgrade India to junk status, upgraded India’s sovereign rating outlook to stable from negative in September last year after a majority government took charge in New Delhi.
However, in February, S&P said improvements in India’s weak fiscal balance sheet are likely to be gradual and unlikely to lead to a rating upgrade in the next three to five years. After finance minister Arun Jaitley presented his budget later that month, S&P reiterated its stand holding that the budget is unlikely to have any impact on the country’s sovereign credit rating.
Moody’s on Thursday said it believes that recent measures of addressing inflation, keeping external balances in check, simplifying the regulatory regime for investors, increasing foreign direct investment, and facilitating infrastructure development will reduce some of India’s sovereign credit constraints.
“Many of these measures are at relatively early stages of design and have yet to be implemented. According to Moody’s, the ability of policymakers to strengthen India’s sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months,” it said in a press statement.
The rating agency said evidence over the coming months that policymakers are likely to be successful in their efforts to introduce growth-enhancing and growth-stabilizing economic and institutional reforms would lead to the rating being considered for an upgrade.
“On the other hand, the rating outlook would be revised to stable if economic, fiscal and institutional strengthening appeared unlikely, or banking system metrics remained weak or balance of payments risks rose,” it cautioned.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.