Moody's raises India rating, cites Modi's economic reforms

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

"The rating upgrade is likely to trigger more fund flows into equities as there is little debt investment limit available now".

Global rating agency Moody's has improved India's sovereign rating for the first time since 2004, citing state reforms to further enhance the economy's capacity to absorb shocks.

In the wake of India's rating being upgraded by global credit rating agency Moody, Finance Minister Arun Jaitley said it is "encouraging to gain worldwide recognition and not something that's happening in isolation".

The US-based Moody's upgraded India's sovereign rating after a gap of 13 years to Baa2, with "stable" outlook, from Baa3 earlier, citing improved growth prospects driven by economic and institutional reforms. "It is a belated recognition of the positive steps taken in the past few years".

Prior to this rating action, HDFC Bank's BCA and ratings were constrained by India's previous sovereign rating of Baa3 given the bank's significant exposure to the government in common with other Indian banks. Moody's also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. Baa2 rating means investment grade with moderate credit risk, and is two notches above the junk grade.

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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.

The credit rating reflects the economic and political stability of a country.

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.

It cautioned however that high-debt burden remains a constraint on the country's credit profile. While GST and demonetisation have undermined growth over the near term, real GDP growth will rise to 7.5 per cent in 2018- 19 as disruption fades, it said.

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