Global rating agency, Moody’s, enhanced India’s sovereign outlook from stable to positive (bringing it closer to an actual rating upgrade), expecting a push from policy-makers to put measures in place to spur growth and put India ahead of its peers. This development is significant, given the importance it would have on raising investor confidence in the Indian economy (sovereign ratings play an important role in global investment decisions and credit access).
In a statement, Moody’s Investors Service explained that the decision to revise the outlook from stable to positive was based on the high probability that actions taken by policy-makers shall enhance the country’s economic indicators, and thereby its financial strength. It added that since India has grown faster than similarly-rated peers over the last decade (owing to favorable demographics, economic diversity, and high savings and investment rates), India is now favorably positioned in the global economic climate with projected growth rates higher than those of its peers. The recent RBI monetary policy review projects the growth rate at 7.8% for the current financial year (ahead of 7.5% for the FY’15).
The current Baa3 rating is characterized by the risk that higher levels of growth and infrastructure development involve is accompanied by higher leverage. The improvements in sovereign credits shall occur over the next 12-18 month and depends upon the extent to which growth, policies and buffers can contain risks.
Earlier, during the regime of United Progressive Alliance (UPA)-led government, the agency had warned of a downgrade if the government policies were seen as stale.
Much needed banking sector reforms
The Finance Ministry is pleased with the upgrade as it stamps the positive changes in the economy since the new government took over last year. While pleased with the news, Finance Minister Arun Jaitley, said that much was still to be done. India’s banking sector is reeling under unproductive loans and poor management in public sector banks, and banking sector reforms, though much needed, are still not being pushed.
Affirming this, the agency said “India’s banking system’s asset quality, loan loss coverage and capital ratios are relatively weak” and in the absence of any improvement in banking-system metrics, India’s sovereign credit profile would remain constrained.
While India’s Baa3 government bond rating incorporates credit strengths (diversified economy, robust growth prospects, relatively high domestic savings rate and high international reserve buffers), India’s performance on the fiscal, inflation and infrastructure-related metrics remains weaker than its peers. Though policies are being put in place to address each of these factors, the extent of likely improvements remains unclear at the moment.
Author Profile
- India Writes Network (www.indiawrites.org) is an emerging think tank and a media-publishing company focused on international affairs & the India Story. Centre for Global India Insights is the research arm of India Writes Network. To subscribe to India and the World, write to editor@indiawrites.org. A venture of TGII Media Private Limited, a leading media, publishing and consultancy company, IWN has carved a niche for balanced and exhaustive reporting and analysis of international affairs. Eminent personalities, politicians, diplomats, authors, strategy gurus and news-makers have contributed to India Writes Network, as also “India and the World,” a magazine focused on global affairs.
Latest entries
- India and the WorldOctober 7, 2024India, Maldives Ink Landmark MOUs to Boost Development Cooperation
- DiplomacyOctober 3, 2024Modi-Biden meeting showed strong strategic alignment between India and US: Expert
- DiplomacyOctober 3, 2024Why multi-alignment matters to India, explains Jaishankar
- DiplomacySeptember 27, 2024Jaishankar meets Bangladesh’s Foreign Minister, focuses on improving ties