Moody’s upgrades India’s sovereign rating, changes outlook to stable from positive

In a boost for the government, US-based ratings agency Moody’s Investors Service upgraded India’s sovereign rating to Baa2 from Baa3 and changed the outlook to stable from positive.

This is the first time in 14 years Moody’s has upgraded its rating on India’s sovereign bonds.

“The decision to upgrade the ratings is underpinned by Moody's expectation that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term,” media reports quoted the rating agency as saying in a statement.

Reports also quoted Moody’s as saying that the government’s reforms have brought down the risk of a sharp increase in debt.

The stock markets reacted positively to the move, with the benchmark indices Nifty and Sensex

The ratings agency mentioned that steps taken by the government like the implementation of the goods and service tax and demonetisation had ‘undermined’ economic growth in the short term and it expects real GDP to grow at 6.7 percent in 2017-18 (Apr-Mar)

It added that with the disruptive effects of the reforms easing, and the government focussing on the small and medium enterprises, growth may rise to 7.5 percent in FY19 and remain robust going forward.

Last year, India had lobbied with Moody’s for an upgrade. The agency had then cited its doubts about the country’s high debt level and fragile banking sector.

Benchmark stock indices the Sensex and Nifty, government bonds and the rupee rose today in response to the ratings upgrade.