Moody’s upgraded India’s credit rating
On friday morning global credit rating agency Moody’s Investors Services raised India’s sovereign rating from Baa3 to Baa2. It has been raised for the first time in 14 years. It cites India’s high growth potential in the upcoming years.
The global credit rating firm said that Moody’s expectation to continue progress on economical and institutional reforms is going to enhance India’s high growth potential and its financial base for government debt, and is also likely to contribute a decline in general government debt burden over the time. That’s why they are upgrading India’s credit rating.
What is Moody’s?
Moody’s Corporation is an American business and financial services company. It is the holder company for Moody’s investor services, a credit rating agency and Moody’s analytics a provider of financial analysis software and services. John Moody created it in 1909 to produce stocks, bonds and bond rating related statistics.
Moody’s Investors Service of Moody’s corporation is the bond credit rating business. Moody’s Investors Service rates debt securities in several market segments related to public and commercial securities in the bond markets. It includes government, muncipal and corporate bonds managed investments such as money market funds, fixed-income funds and hedge funds financial institutions including banks and non-bank finance companies; and asset classes in structured finance.
Moody’s Investors Service’s closest competitors are Standard & Poor’s (S&P) and Fitch Group. Together, they are sometimes referred to as the Big Three credit rating agencies. Moody’s Investors Service and its substitue companies like S&P or Fitch group play an important role in global capital markets as a supplementary credit analysis provider for banks and other financial institutions in computing and analysing the credit risk of particular securities.
Indian reforms recognised by Moody
Moody’s gave a thumbs up to these reforms from demonetisation, Aadhar-UID, GST (Goods and Services Tax) and PSU bank recapitalisation. They said that GST will encourage productivity by removing barriers to interstate trade(trade between different states). They also believes that measures to address the depression of NPLs in the banking system, will advance the government’s objective of improving the overall business environment. The global credit rating firm also appreciated government’s efforts in the Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system which will lead to reduction of informality in the economy.
Further, the firm points out that the implementation of the new indirect tax regime has declined growth over the near term. As reflected by the slow GDP growth of 5.7% in the first three months of 2017-18. But the agency believes that the disorganization effect of these reforms will fade as the government helps small and medium enterprises and exporters. It expects real GDP growth to average to 6.7% in the fiscal year ending in March 2018.
India has higher growth potential
The agency says India’s growth potential is significantly higher than most other Baa-rated sovereigns. While a number of important reforms remain at the planning phase. Moody’s believes that those implemented to date will advance the government’s objective of improving the business environment, increasing productivity, stimulating foreign and domestic investment, and ultimately promoting strong and sustainable growth.
Although the rating agency agreed that still a lot remains to be completed such as fixing the GST’s implementation challenges, weak private sector investment and the slow resolution of banks’ bad loans. They said that they expect at least some of these issues to be resolved over time. It will help further improve the Indian government’s effectiveness and overall institutional framework.
Reasons for India’s upgradation
- Since Modi government came into power India has added more than $100 billion to forex reserve. On May 16 2014 it was $288 billion. On November 10 2017 it was $399 billion.
- Foreign direct investments has increased significantly. In 2014-15 it was $36 billion. While in 2016-17 it was $56 billion.
- SENSEX has increased nearly 40% from 2014 to 2017
- Exchange rate between rupee and dollar has been relatively stable. On may 16 2014 it was Rs.58.78/$. While on November 17 2017 it was Rs.65.02/$.
- Inflation rate has been hanging low. In May 2014 it was 7.7% while in November 2017 it was 3.6%.
Increase in rating in global credit will increase the investments in India. As the investments in India will increase and more startups will step in. It’ll lead to increase in job opportunities and employment in India.It will encourage more people from different countries to invest in India. Underlaying its upgrade on the sustainable growth that reforms will boost up and the greater stability in government debt going forward. Although it’ll now increase the burden on government because now they have to work hard for development of India. Because increase in rating doesn’t mean that increase in development of a country. It means higher growth prospective of a country.
But Modi government is working hard for the welfare of India and Indians. And also the whole world is also watching India as a better investment option. That’s why I think that increase in credit rating will have positive effects on Indian economy and growth.