Sensing an upward trend of country’s economic growth, led by the Modi Government, global rating agency Moody’s on Thursday raised India’s credit outlook to ‘positive’- a notch above from the earlier ‘stable’ outlook. On the other hand, another rating agency Fitch projected it as a faster growth -- raising hopes for an upgrade in its sovereign rating in the next 12-18 months.
On the outlook upgrade, Finance Minister Arun Jaitley said the action is ‘significant’, but the Government has to do more to further boost economy. “Moody’s has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we’ve to do more,” he tweeted in public.
India’s sovereign rating by Moody’s stands at ‘Baa3’, the lowest investment grade, while it had earlier projected a ‘stable’ outlook for the country. But Fitch, which maintained its equivalent ‘BBB-’ rating with stable outlook, on the other hand projected 8 per cent GDP growth for the current fiscal, higher than 7.8 per cent estimate of the RBI. It also indicated positive rating action if the government follows its fiscal consolidation roadmap.
Moody’s sovereign rating analyst Atsi Sheth told news agency PTI, “Our positive rating outlook for India reflects our view that the probability has now increased that over the next 12-18 months India’s sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating.”
The sovereign rating and outlook of a country are often used by foreign investors and global bodies to gauge its investment climate. They also have a bearing on the cost of overseas borrowing by domestic companies.
Cautioning the development that the Government and regulators should not lose sight on what more needs to be done, RBI Governor Raghuram Rajan, however, said it is a ‘positive perception of what we have done over the past few quarters’. “We should not celebrate upgrades as we did not worry about downgrades. There are a lot of low-hanging fruits that need to be picked,” he added.
Upgrading the outlook from ‘stable’ to ‘positive’, Moody’s, however, said that India has grown faster than many peers over the last decade and the actions of the policymakers should further boost economic and financial strength in coming years.
“There is an increasing probability that actions by the policymakers will enhance the country’s economic strength and, in turn, the sovereign’s financial strength over coming years,” Moody’s said.
Moody’s, however, said that the Indian economy is still heavily exposed to external and financial shocks because of which it has maintained ‘Baa3’ rating for the country. Referring to the policy initiatives of the Narendra Modi- government, Fitch said the reform agenda has brought “dynamism back to the Indian economy, after a couple of years of limited progress on the structural front”.
The agency raised its forecast for real GDP growth to 8 per cent for current financial year and further to 8.3 per cent in 2016-17, compared with 7.4 per cent GDP growth in 2014-15.
Chief Economic Advisor Arvind Subramanian said that the “upgrade of outlook proves that the government is moving in the right direction. It validates India’s commitment on fiscal discipline.
With the development the stock markets responded positively with the benchmark BSE Sensex rising 177 points to one-month high of 28,885.21.
Since 2004, Moody’s has rated India at Baa3 -- at par with countries like Indonesia, Iceland and Turkey. Another agency S&P also has a similar rating for India and it recently upgraded its outlook from ‘negative’ to ‘stable’.
Commenting on Moody’s action, Minister of State for Finance, Jayant Sinha said the NDA government has restored the faith of investors and rating agencies on the growth outlook of the Indian economy. “Moody’s decision continues to reaffirm that rating agencies, global investors and our own domestic businesses have faith in India’s growth outlook and our financial strength as a sovereign,” he told reporters here.
Revenue Secretary Shaktikanta Das said it will improve confidence of investors in India. Finance Secretary Rajiv Mehrishi said this development affirms the positive programmes and policies announced in the Budget. “I hope the next stage would be upgradation of the ratings itself.”
With rating agencies Fitch and Moody’s affirming India’s credit outlook as “stable” and “positive” respectively, Ficci on Thursday said the move will uplift investor sentiment and help attract foreign investments.
“It reflects the improving outlook for Indian economy on the back of various reform measures taken by the Government towards simplification of regulatory regime, maintaining fiscal and external balances and fostering a conducive business climate,” Ficci Secretary General Didar Singh said.
“It will further uplift global investor sentiment and help in attracting greater foreign investments across the board. To sustain investor interest, implementation remains the key. We hope that the reform momentum shall continue with an emphasis on long-term socio economic development,” Singh said.
In a big vote of confidence for the Modi government, rating agency Moody’s today raised India’s credit outlook to ‘positive’, while Fitch projected faster growth -- raising hopes for an upgrade in its sovereign rating in the next 12-18 months.
Need to do more, says Jaitley on outlook upgrade
The Moody’s upgrade of India’s rating outlook to ‘positive’ from ‘stable’ is significant, but the Government will have to do more, Finance Minister Arun Jaitley said on Thursday. “Moody’s has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant, but we’ve to do more,” Jaitley said in a tweet.
Explaining the rationale behind the move, the global credit rating agency Moody’s said the Government is taking steps to improve economic strength and stressed that a rating upgrade could follow in about 12-18 months.
India’s sovereign rating currently stands at ‘Baa3’, the lowest investment grade -- just a notch above ‘junk’ status. The agency said favourable demographics, economic diversity as well as high savings and investment rates would act as a structural advantage for India. Besides, relatively benign global commodity prices and liquidity conditions will keep India’s growth higher, Moody’s Investors Service added.
On affirming ‘Baa3’ rating, Moody’s said it reflects India’s weaker performance on fiscal, inflation and infrastructure-related metrics. “While policies are beginning to address each of these factors, the extent of likely improvements is as yet unclear.”