After Moody's upgrade, doubters should introspect: Jaitley

New Delhi: International rating agency Moody’s on Friday upgraded India’s sovereign credit rating on the optimism that the recent measures taken by the Narendra Modi government will spur economic growth.

It is after 13 years that Moody’s has upgraded country’s credit rating. Sovereign credit ratings give investors an insight into the level of risk associated with investing in a particular country, which includes political risks.

An upgrade by Moody’s Investors Service is a major back-to-back victory for the Narendra Modi government after World Bank recently upped India’s ranking by 30 places to the 100th place in the “Ease of Doing Business” list.

Finance minister Arun Jaitley said Moody’s decision was a “belated recognition” of the steps the government has taken to fix the Indian economy.

“After a long spell of 13 years, India gets the rating upgrade. I am sure that many who had doubts about India’s reform process can now seriously introspect on their position,” Mr Jaitley said in a jibe at critics of government’s reforms agenda. He said that if one looks at the Modi government’s track record of three years, it has been one of the better records in Indian history as far as fiscal discipline is concerned. “And we intend to move on that track,” added Mr Jaitley.

BJP president Amit Shah hailed the development and said, “Moody’s believes that the Modi government’s reforms will improve the business climate, enhance productivity, attract more investment and put India on a higher growth trajectory. Moody’s remains bullish on reforms done by the Modi government and is confident of India’s growth potential.”  

Meanwhile, Congress communications in-charge Randeep Surjewala sought to downplay Moody’s rating upgrade, saying the same agency had miscalculated US subprime mortgages before the economic meltdown.

“Modiji and Moody’s pair (Jodi) have failed to gauge the ‘Mood of the Nation’. Hunger deaths, farmer’s shootings, agri distress, job losses, lowest credit ratings, rising prices, plunging exports, flawed GST, demonetisation disaster, stagnant growth are the real indices to measure it,” he said.

“After destroying India’s economy, the Modi government is clutching at straws to claim lost credibility,” he said on Twitter.

Moody’s upped India’s rating to Baa2 from Baa3 and changed its rating outlook to “stable” from “positive”.

Baa2 rating means investment grade with moderate credit risk, which is two notches above the junk grade. Baa3 rating was the lowest investment grade — just a notch above junk status.

Moody’s had last upgraded India in 2004. It had in 2015 changed rating outlook to “positive” from “stable”.

Now all eyes are on other rating agencies S&P and Fitch Ratings whether they will follow Moody’s lead.

“The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential,” said Moody’s, in a statement.

While India’s high debt burden remains a constraint on the country’s credit profile, Moody’s said that it believes the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

Moody’s counted Goods and Services Tax (GST), measures to address non-performing loans (NPLs) in the banking system, demonetisation, Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) as key reforms undertaken by the Modi government.

“Most of these measures will take time for their impact to be seen, and some, such as the GST and demonetisation, have undermined growth over the near term. However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5 per cent in FY2018, with similarly robust levels of growth from FY2019 onward,” said the rating agency.

In the long term, India’s growth potential is significantly higher than most other Baa-rated sovereigns, it added.

Moody’s separately raised the ratings of top Indian lender State Bank of India, HDFC Bank as well as state-run energy firms, NTPC, NHPC , GAIL India Limited and the National Highways Authority of India, potentially lowering their borrowing costs.