Published: Sat, November 18, 2017
Markets | By Erika Turner

Encouraging to gain worldwide recognition: Jaitley on Moody rating

Encouraging to gain worldwide recognition: Jaitley on Moody rating

"Moody's raised its rating on India to Baa2 from Baa3, the first such move since January 2004, saying recent reforms would enhance productivity, stimulate foreign and domestic investment and foster "strong and sustainable growth".

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. While upgrading the rating, Moody's cited reforms like the recently- introduced GST, improvements to the monetary policy framework, measures to clean up non-performing loans and efforts to bring more areas into the formal economy. Baa2 rating means investment grade with moderate credit risk, and is two notches above the junk grade.

Furthermore, Jaitley said the steps taken by the government in the last few years have contributed to the strengthening of the Indian economy, which ultimately lead to the upgradation.

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Credit ratings indicate the general creditworthiness of an entity (such as a bank, corporate or sovereign) and the likelihood that it will meet its financial obligations in a timely manner. Congress communications in-charge Randeep Surjewala claimed the same rating agency had miscalculated U.S. subprime mortgages before the economic meltdown. Continuous OMO sales have been a key reason for the massive sell-off in the bond market since June-end, in addition to concerns over inflation and fiscal discipline. "Many who had doubts about India's reform process would now seriously introspect on their position", Finance Minister Arun Jaitley said in response.

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, however, said the high public debt burden remains an important constraint on India's credit profile relative to its peers, notwithstanding the mitigating factors which support fiscal sustainability.

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