Moody’s Investors Service, the international rating agency, has raised India’s sovereign rating for the first time in 13 years. India’s local and foreign currency issuer ratings have been upgraded to Baa2 from Baa3. Besides, the outlook on the rating has been changed to stable from positive. Also, the short term foreign currency bank deposit ceiling has been raised to P-2 from P-3.
This revision in the country’s sovereign rating was last carried out in 2004 when BJP government led by Atal Bihari Vajpayee was in power. Owing to the uncertain situation of economy, especially after so many policy changes, this revision of ratings has come up as a surprise for many investors.
Upgrade Effect on Market
The upgrading has also affected the rupee, bonds, and stocks in the market. The Sensex rose over 400 points to reach 33,520 on Friday morning and Nifty gained 120 points. Rupee surged as much as 1% to 64.67 per dollar in Mumbai while the 10-year sovereign bond tumbled 11 basis points to 6.96%. Furthermore the benchmark equity index saw a rise of 1.25%.
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After the upgraded ratings, the reforms of the government are believed to aid in stabilizing the rising debt levels. Besides, this is reportedly a one-level shift from the lowest investment-grade ranking and has put India amongst countries like Philippines and Italy.
Opinions and Statements
Prime Minister’s chief Economic Adviser Arvind Subramanian has referred to the upgrade as “an overdue reaction” and has stated that it’s “recognition of India’s macro economic reforms”. In a press Conference held today, Finance Minister Arun Jaitley welcomed Moody’s upgraded ratings and termed it as a “recognition and an endorsement” of government’s economic reforms.
The Finance Minister also highlighted some major accomplishments of the government that have contributed to the economic growth of the country. He pointed out that demonetization, GST, and Aadhaar implementation have proved to be significant reforms in taking India towards a digitized economy. He also said that gaining an international recognition is encouraging for the country and those who had doubts on government reforms can now introspect.
Moody’s Forecast
As per the reports, India has jumped 30 places to rank 100th in the latest ranking, last month. Another report by Pew Research Centre this week revealed that PM Modi remained a popular leader and the public confidence in Indian economy had improved.
According to Moody’s, the GST will promote productivity by removing barriers and bring improvement in the monetary policy framework as well as address the overhang of non-performing loans. It also said that the Aadhaar system, Direct Benefit transfer system, and demonetization are intended to reduce the informality in the economy. It also forecasted the GDP growth of 6.7% for FY2018 which will pick up to 7.5% in the following year.
