Published: Fri, November 17, 2017
Hi-Tech | By Ellis Neal

Moody's upgrades India's rating citing economic reforms

Moody's upgrades India's rating citing economic reforms

The government won praise from ratings firms for a $32 billion program to recapitalize banks that economists say will revive lending and stoke demand on the ground.

Prime Minister Modi tweeted, "Moody's believes that the @narendramodi Government's reforms will improve business climate, enhance productivity, stimulate foreign and domestic investment, and ultimately foster strong and sustainable growth".

India's bank recapitalisation plan and a push to resolve its bad loans issue by reforming the bankruptcy code were beginning to address a key weakness in India's sovereign credit profile, said Moody's.

Moody's also raised India's local currency senior unsecured debt rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

Moody's lifts India's rating to Baa2
Rupee climbs over 60 paise against US dollar after Moody's rating upgrade

The 10-year benchmark bond yield is expected to fall 7-10 basis points in early trade from its previous close of 7.06 percent and move in a 6.95 percent to 7.00 percent band during the day. The rupee went up sharply against the dollar at 64.67.

The International rating agency has also upgraded India's bond rating from "Positive" to "Stable" saying the reforms by the Union government have helped in reducing the risk of sharp debt increase. "Government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, including through demonetization and GST, both illustrate and should contribute to the further strengthening of India's institutions", the rating agency said.

"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% in FY2018 (2018-19), with similarly robust levels of growth from FY2019 (2019-20) onward".

Sanjeev Sanyal, Principal Economic Advisor echoed CEA's views and said that rating upgrade to Baa2 is a good news and a recognition of the long series of reform measures that have been done under PM Modi. "Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", it said.

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