Is Moody's upgrade a thumbs up to BJP-Modi's reforms?

Is Moody's upgrade a thumbs up to BJP-Modi's reforms?

Is Moody's upgrade a thumbs up to BJP-Modi's reforms?

"Many who had doubts about India's reform process would now seriously introspect on their position", Finance Minister Arun Jaitley said in response.

The rating agency said recent reforms had reduced India's risk of sharp rise in debt, "even in potential downside scenario". Also, if foreign investors were willing to pour money into India without bothering much about Moody's - the other major agency, Standard & Poor's, incidentally, hasn't changed its sovereign rating from "BBB-" (lowest investment grade) since January 2007 - how does any upgrade or downgrade matter?

Stocks of firms like HPCL, IOC, ONGC, GAIL and NTPC rallied as these firms were amongst those which got an issuers and ratings upgrade.

USA credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years.

Moody's also changed the rating outlook to "stable" from "positive" saying the economic and institutional reforms pushed through by the government will help stabilize debt.

Arvind Chari, Head, Fixed Income & Alternatives, Quantum Advisors, said the ratings upgrade seems to have come at a wrong time as the government is facing pressures on the fiscal front. "The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness".

Worldwide rating agency Moody's has improved India's sovereign rating for the first time since 2004, citing state reforms to further enhance the economy's capacity to absorb shocks.

"Challenges with implementation of the GST, ongoing weakness of private sector investment, slow progress with resolution of banking sector asset quality issues, and lack of progress with land and labour reforms highlight still material government effectiveness issues", it said.

For this improvement in the ranking, Moody's have mentioned the ongoing economic reforms initiated by the present Govt.; and this means that PM Modi's decisions regarding demonetization and GST has received an global approval.

These measures increase the degree of formality in the economy, broaden the tax base (as with the GST), and promote expenditure efficiency through rationalisation of government schemes and better-targeted delivery (as with the DBT system) will support the expected, though very gradual, improvement in India's fiscal metrics over time, it said. The measures should contribute to further strengthening of India's institutions, it said.

Moody's expects GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018. "Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", it said.

Upgradation of India's credit rating by Moody's is a big news, because it has been done after 14 years, and done at a time when business analysts and observers are severely questioning PM Modi's decisions to implement GST and ban 80% of currencies overnight.

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