BJP, government cheer Moody's ratings upgrade

Posted November 19, 2017

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.

President of industry chamber Ficci Pankaj Patel said the development underlines the fact that India is moving in the right direction.

"Over a point of time, this will reduce borrowing costs of the government and financial institutions and result in increased investor confidence in the India growth and reform story", SBI Chairman Rajnish Kumar said.

Stating that reforms will foster sustainable growth prospects, the US-based agency said the government is mid-way through a wide-ranging programme of economic and institutional reforms. The decision by Moody's is a shot in the arm for Prime Minister Narendra Modi's government and the reforms it has pushed through, and comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings. "We believe that the upgrade is a belated recognition of all our positive steps that have contributed to the strengthening of the Indian economy".

"Markets should worry that the government now having received the ratings upgrade, may actually slacken and relax its commitment to reducing fiscal deficit, as per the stated plan - especially, at a time when investors seem to be worrying about the same as reflected in the increase in bond yields of more than 50 bps since August 2017,"said Mr Chari".

In the case of HDFC Bank, the rating agency has also upgraded the bank's baseline credit assessment (BCA) and adjusted it to Baa2 from Baa3, it said.

This period has, moreover, seen the country grow from a barely $ 620 billion to a $ 2.3 trillion economy, with its official foreign exchange reserves, too, soaring from some $ 110 billion to nearly $ 400 billion.

The rating upgrade augurs well for inflows into the local bond market, which has already witnessed solid inflows in 2017.

The BSE Sensex, which opened at 33,388.47 points, was trading at 33,471 points (at 10.44 a.m.), up 366 points or 1.12 per cent from the previous day's close at 33,106.82 points.

India's economic growth had slipped to an over three-year low of 5.7 per cent in the first quarter. "Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", it said.

Can Moody's India upgrade be considered an endorsement of PM Modi's economic reorganization?

"In the event the Central Government is able to manage its finances well and stick to the fiscal consolidation roadmap in its Budget 2018-19, rating upgrades by other rating agencies should follow", said the PwC economist.

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