Moody’s Investors Service on Tuesday said it may upgrade India’s sovereign rating if the government implements its reform agenda and sustains the recent improvement in inflation, fiscal and current account ratios.
Currently, Moody’s has a Baa3 rating on India with positive outlook. Since 2004, it has kept the rating at Baa3, the lowest investment grade, a notch above ‘junk’ status.
In its latest report on the economy, Moody’s has, however, cautioned that the ratings outlook is likely to return to ‘stable’ if there is a reversal of the policy reform process, if the banking system metrics continue to weaken, or if there is a decline in foreign exchange reserves coverage of external debt and imports.
According to the international rating agency, policy progress is likely to be slow and is unlikely to be reflected in near-term economic indicators. However, if policies to improve India’s operating environment are effectively implemented, and accompanied by a strengthening of institutions, their impact would improve the sovereign credit profile over the medium-term, it said.
The report noted that India’s macroeconomic indicators have improved over the past few years. In general, government deficit and debt-to-GDP ratio are both lower than their levels in 2009. In addition, inflation and the current account deficit-to-GDP ratio has also declined from their recent peaks, Moody’s said.
In addition to lower oil prices, tighter fiscal and monetary policies have helped restore India’s macroeconomic balance over the past two years, the report said.
GDP growth This improved the balance of the economy and offered the financial system some resilience to potential volatility in global capital flows in the coming months, it added.
Although India’s GDP growth has slowed from peaks achieved a decade ago — Moody’s forecast is 7 per cent this year — it is likely to surpass the average for its peers, as it has over the last decade, the report said.
As a commodity importer, India benefits from a low price environment, and its reliance on domestic demand for GDP growth partially shields the economy from the subdued outlook for global growth, it added.
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.