S&P ratings on India affirmed at ‘BBB-/A-3’; Outlook stable. S&P also affirms India’s reforms and growth story.
— Ministry of Finance (@FinMinIndia) November 24, 2017
It said the stable outlook reflects its view that, over the next two years, growth will remain strong, India will maintain its sound external accounts position, and “fiscal deficits will remain broadly in line with our forecasts.”
“Upward pressure on the ratings could build if the government’s reforms markedly improve its net general government fiscal out-turns and so reduce the level of net general government debt. Upward pressure could also build if India’s external accounts strengthen significantly,” S&P said in the statement.
“Downward pressure on the ratings could emerge if GDP growth disappoints, causing us to reassess our view of trend growth; if net general government deficits rose significantly; or if the political will to maintain India’s reform agenda significantly lost momentum,” it added.
Boosting investor sentiments, US credit rating agency Moody’s on November 17 upgraded India’s sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years, a development Finance Minister Arun Jaitley said was “an extremely encouraging” global recognition of the structural reforms of last three years. India Inc too lauded it.
Moody’s has expressed confidence in in the continued progress on economic and institutional reforms over time and sees that this will enhance India’s growth potential and its large and stable financing base for government debt. Moreover it predicts that this will lead to a gradual decline in Government debt burden over the medium term.
Although India’s high debt burden remains a constraint on the country’s credit profile, Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios. 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.
While critics have taken the Mody government to task for the GST, demonetisation and Aadhaar card controversy rages on, Moody sees these as positive structural reforms that will reduce informality in the economy. Moody’s website acknowledges that demonetisation and GST have undermined growth in the near term through disruption but sees these measures to be beneficial in the longer term.
Moody’s even predicts that GDP growth will increase in Fiscal year to 7.8 in Fiscal year 2018 and will continue to grow robustly 2019 onwards. It sees reforms to continue to strengthen India’s institutional framework and is encouraged by Government efforts to reduce corruption, fomalise economic activity and improve tax collection.
Congress, however continues to dampen this news, pointing to the immediate impacts of the policies. Its spokesperson said that both Modi and Moody’s had “failed to gauge the mood of the nation”. “After destroying India’s economy, the Modi government was clutching at straws to claim los‘ credibility. Modiji and Moody’s ‘Jodi’ have failed,” Congress spokesperson Randeep Singh Surjewala tweeted.
[caption id="attachment_21933" align="alignleft" width="236"] Jaitley looking happy[/caption]
Jaitley meanwhile was jubilant, having come under constant attack from the media for the policies. He felt vindicated saying, “It is extremely encouraging that there is an international recognition… This is not something that is happening in isolation.”
Jaitley told reporters: “It is a belated recognition of all the positive steps taken in the last few years. It is a recognition and an endorsement of the process that India has undergone in the last three-four years where a number of structural reforms have placed India on a higher growth trajectory.” He said the government had shown fiscal prudence through a series of steps in the last few years like demonetisation, introduction of Aadhaar, Insolvency and Bankruptcy Code, recapitalisation of public sector banks and smooth transition to the GST that have led to better economic situation.
Jaitely said: “Smooth transition of GST is universally recognised as a landmark reform in Indian tax structure. All these steps which constituted major reforms are directional in nature. All steps taken in the last few years had a roadmap. “For three years we were doing a lot of structural reforms. Even we have moved up 30 places in World Bank’s Ease of Doing Business. Now after a long spell of 13 years, India gets rating upgradation,” he added.
The minister said that with the introduction of GST, market barriers had been removed. Also, demonetisation had made the country less cash currency oriented and made it more digitised. “Our track record for the last three years speaks for itself and we intend to move on that. We will maintain fiscal prudence,” Jaitley said.
In a hard hitting speech at Kochi, Dr Manmohan Singh, former Prime Minister, attacked Mody Government, saying that the three-and-a-half year rule has ruined all sectors and also created a wedge in the secular credentials of India. His speech turned to erosion of secularism.
The Business community however was happy with Moody’s upgrading and satisfied with Jaitley.