Ratings upgrade good, but it must be sustained
Credit ratings by international agencies are like rankings in sports. You can be a top-ranked player one day and slip down soon after. Ace badminton player Saina Nehwal is a recent example: Within days of gaining it, she lost her world number one ranking. Yet, even if for a while, a higher rating or ranking has a meaning: It is a positive reflection of both sentiment and action. Rating agency Moody's revision of outlook for the Indian economy from ‘stable' to ‘positive' must be seen in this context. It is an expression of the positive energy flowing through the economy since the advent of the Narendra Modi Government 11 months ago. It is also an endorsement of the various measures the Government has taken to kick-start the economy and dilutes to an extent the criticism emerging from a section of the business community that there has been more talk than action from the Centre.
Moody's believes that recent steps the Government has taken to address inflation and complex rules and regulations that are obstacles to faster project clearances, and the announcements of enhanced foreign direct investment in the insurance and defence areas as well a new thrust to the development of the infrastructure sector, will bear fruit in the months to come. The international credit rating agency also took positive note of the connect between the fiscal and the monetary policies of the Government and the Reserve Bank of India respectively. Two other rating agencies, Fitch and Standard and Poor's, have also in recent times enhanced their outlook for the country since the coming of the new Government. From the Modi regime's perspective, the good news could not have come at a better time: Prime Minister Modi has embarked on his three-nation tour to France, Germany and Canada where he is expected to hard-sell the India growth story and solicit funds for Make in India and smart cities projects. One important impact of the upgraded outlook is that the country has a better chance to draw global funds at reasonable cost since investor sentiments get boosted by such elevated ratings.
But an even fuller and greater impact will be felt if foreign investors are more upbeat about the rupee exposure. As of now, Moody's overall sovereign rating for India remains only a notch above the ‘junk' grade. There is much more that needs to be done, and Union Minister for Finance Arun Jaitley has said this in so many words while welcoming Moody's upgrade. There has to be swift action on the ground to implement the many decisions the Government has taken. Enhancing the ease of doing business, improving the financial infrastructure, empowering the small and medium businesses (through micro-financing) which have a vast potential for employment, and putting in place the Goods and Service Tax regime remain the primary tasks and challenges — besides keeping inflation and fiscal deficit within limits.