BJP, government cheer Moody's ratings upgrade

BJP, government cheer Moody's ratings upgrade

BJP, government cheer Moody's ratings upgrade

Rating agency Moody's on Friday upgraded India's sovereign credit rating on the optimism that the recent reforms measures introduced by the Modi government would spur economic growth. Government officials expressed hope that other credit rating agencies such as S&P and Fitch would follow suit.

At the same time, Moody's says India's high debt burden remains a constraint on the country's credit profile with the government's reform measures reducing the risk of a sharp increase in indebtedness. "While a number of reforms remain at the design phase, Moody's believes that those implemented to date will advance the government's objective of improving business climate, enhancing productivity, stimulating investment, and ultimately fostering strong and sustainable growth", it added. Standard and Poor's, which still assigns the lowest investment grade to India with a stable outlook, said India needed to address its weak fiscal position, indicating upgrades would take time.

However, an immediate reduction in borrowing costs may not be significant as Indian papers are trading one notch above the sovereign rating, as investors had already factored in a rating upgrade.

"On the fiscal front, efforts to improve transparency and accountability, including through adoption of a new Fiscal Responsibility and Budget Management (FRBM) Act, are expected to enhance India's fiscal policy framework and strengthen policy credibility", said the Moody's report.

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"Key elements of the reform program include the recently-introduced Goods and Services Tax (GST) which will, among other things, promote productivity by removing barriers to interstate trade; improvements to the monetary policy framework; measures to address the overhang of non-performing loans (NPLs) in the banking system; and measures such as demonetization, the Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system meant to reduce informality in the economy", the global credit rating agency has said in its statement. "Entire world is recognising "Sabka Saath, Sabka Vikas" Railways and Coal Minister Piyush Goyal said in a tweet.

The rating upgrade comes after a gap of nearly 14 years, which many economists said was long overdue. "The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness".

According to Moody's, real GDP growth will moderate to 6.7 percent in the fiscal year ending in March 2018 and will rise to 7.5 percent in the next financial year with similarly robust levels of growth from 2019 onward.

Key steps that are yet to fructify include planned land and labour market reforms, which rely to a great extent on cooperation with and between states, Moody's said. Focus on macro-stability and structural reforms (GST, bankruptcy resolution, replacing open-ended subsidies with direct benefit transfers etc) will certainly yield gains to the economy in the medium to long term. Moody's cautioned that a material deterioration in fiscal metrics and the outlook for general Government fiscal consolidation would put negative pressure on the rating.The rating could also face downward pressure if the health of the banking system deteriorates significantly or external vulnerability increases sharply.

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