Moody's lifts mood, raises India's rating

Moody's ratings 'extremely encouraging', endorses Centre's reforms, says Jaitley

The US-based agency today upped India's rating to Baa2 from Baa3 and changed its rating outlook to "stable" from "positive", saying the reforms will help stabilise rising levels of debt.

The upgrade came after 13 years.

"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 and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term", a Moody's Investor Service release said. However, the other two global rating agencies - Fitch and Standard & Poor's - maintain a BBB- rating with a stable outlook for India.

Sovereign ratings are a barometer for investors to ascertain the country's economic health and investment climate.

Moody's said that the recent announcements of a comprehensive recapitalisation of Public Sector Banks (PSBs) and signs of proactive steps towards a resolution of high NPLs through use of the Bankruptcy and Insolvency Act 2016 are beginning to address a key weakness in India's sovereign credit profile. The country is on the way to growth of up to eight percent next year, according to Indian Finance Minister Arun Jaitley. "Baa3" is the lowest rating in the investment grade, just a notch above "junk" status.

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On the fiscal prudence front, Jaitley said as India continues on the path of fiscal prudence, more stability has been brought into the economy.

Hitting out at opposition for criticising government's economic policies, Jaitley said that those who had doubts about India's reform process should seriously introspect on their position.

Although Moody's acknowledged that the Indian economy has taken a beating as a result of the goods and service tax (GST) and demonetisation, it reckoned that both would turn out to be worthwhile in the long run.

The move comes nearly two months after the Moody's and Standar & Poor's lowered their ratings on regional rival China citing the country's ballooning debt burden.

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