Moody’s Investors Service has upgraded India’s sovereign rating for the first time since 2004, citing continued progress in the nation’s economic and institutional reforms. The rating agency, on 13 November, upgraded India's rating to Baa2 from Baa3. The outlook on the rating is 'stable'.
Explaining the rationale behind the upgrade, Moody’s said reforms being pushed by the government will help stabilise debt and enhance the country’s growth potential.
Prime Minister Narendra Modi’s government has rolled out a string of reforms such as the Goods and Services Tax, a new monetary policy framework, measures to check the banking sector’s bad loans ratios, demonetisation, the widely debated Aadhaar biometric system, and the Direct Benefit Transfer system. These reforms will reduce informality in the country, Moody’s report said. The rating agency noted that the recently introduced GST will promote productivity by removing barriers to interstate trade.
Most of the reforms implemented by the government have been met with debates, especially GST, demonetisation and Aadhaar. The first two have led to short term disruptions in the economy. Moody’s acknowledged the short term weakness in the economy, stating that it expects real GDP growth to moderate to 6.7 percent in the fiscal year ending in March 2018.
However, as disruption fades, India’s GDP growth will rise to 7.5 percent, Moody’s said.
“Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns.”
‘Relief To All’
Bond markets have recently suffered due to uncertainty on fiscal front, which “ironically” came with the implementation of reforms like GST, said Vivek Rajpal, senior rates strategist at Nomura. The upgrade however, should be seen as "a relief to all classes" and will ensure that investors see upcoming reforms in positive light, Rajpal said.
The Singapore-traded SGX Nifty, an early indicator of NSE Nifty 50 Index’s performance in India, rose 0.8 percent to 10,313.50 as of 7:15 am. The non-deliverable forward rupee also saw a sharp uptick after the announcement, trading close to 64.9 against the US dollar.
(This article was originally published on BloombergQuint)
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