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Moody’s upgrade India’s Sovereign Rating


Rating Agency Moody’s Investor Services upgrades India’s government bond rating to Baa2 from Baa3, It also changed the outlook to stable from positive.


The upgrade is made on the expectations that continued progress on economic and institutional reforms will over time enhance India’s high growth potential. Moody’s also expects a gradual decline in the general government debt burden over the medium term.


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


Moody’s also believes that recent reforms offer greater confidence that the high level of public indebtedness which is India’s principal credit weakness will remain stable, even in the event of shocks, and will ultimately decline.


Ratings Rationale

  • Reforms will foster sustainable growth


  • Reforms provide greater assurance that government debt will remain stable


  • Reforms will continue to  strengthen India’s Institutional framework


  • Government support to Public Sector Banks mitigates Banking sector risk, supports growth


Rationale for Stable Outlook


The stable outlook reflects Moody’s view that, at the Baa2 level, the risks to India’s credit profile are broadly balanced.


The relatively fast pace of growth in incomes will continue to bolster the economy’s shock absorption capacity. And even in periods of relatively slower growth, as seen recently, stable financing will mitigate the risk of a sharp deterioration in fiscal metrics.


Sovereign rating is a barometer of the country’s investment climate. It gives investors insight into the level of risks associated with investing in a particular country and also includes political risks.


For long, India was rated by rating agencies at Baa3, the lowest investment grade and just a notch above the junk grade, which has now been upgraded a notch higher by Moody’s.


Moody’s expects real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018 (FY2017). 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, with similarly robust levels of growth from FY2019 onward.


“Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns” Moody’s noted


Moody’s has also raised India’s long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.


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