MOODY’S UPGRADES INDIA TO ‘STABLE’ OUTLOOK
India’s rating upgraded to ‘Baa2’ with ‘stable’ outlook
MUMBAI lead to easing in yields across tenors,” she said.
Moody’s said the recently-introduced Goods and Services Tax (GST), a landmark reform that turned India’s 29 states into a single Customs union for the first time, would boost productivity by removing barriers to interstate trade.
“In the meantime, while 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,” said the ratings agency in a statement.
Still, some market participants questioned the timing of the move.
“The timing is little dicey for the upgrade given that there are lot of concerns over the government’s fiscal discipline,” said a foreign bank dealer, adding that he did not expect other agencies to follow Moody’s.
Moody’s said it expected India’s real gross domestic product growth to moderate to 6.7 per cent in the fiscal year ending in March 2018 from 7.1 per cent a year earlier.
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.
The government of Prime Minister Narendra Modi eased tax requirements last month for small and medium companies in response to growing criticism of its economic stewardship.
Moody’s noted that while a number of key reforms remained at the design phase, it believed those already implemented would advance the government’s objective of improving the business climate, enhancing productivity and stimulating investment.
“Longer term, India’s growth potential is significantly higher than most other ‘Baa’-rated sovereigns,” said Moody’s.
The agency said challenges from the implementation of the GST, ongoing weakness in private sector investment, slow progress with resolution of banking sector asset quality issues, and lack of progress in land and labour reform remained key issues. Reuters