People who came to scoff remained to pray is a very old saying which has come to my mind on reading cheering or economy. It is hoped that critics who raised their voice in the streets will now reconcile and start cooperating with the Government and forget the past. Global credit rating agency Moody’s Investors Services raised India’s sovereign rating for the first time in 13 years and it is enviable achievement. Moody’s citing the country’s high growth potential in the years has come and the right time and thanks to economic and institutional reforms of Modi government since 2014.
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 and it is a welcome sign for a developing country like India. The upgrading of the Indian government’s rating as a local and foreign currency issuer from Baa3 with a positive outlook to Baa2 with a stable outlook shows the real economic development we need to attain and attribute to the country. Borrowing obligations rated Baa2 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Baa3, by contrast, was the lowest investment grade rating.
These augers well for foreign direct investment at a time when domestic private investment has been constraint. Hope S & P would review for upgrading irrespective of setback on demonetisation and GST implementation fiasco impacting medium and small industries. Sustainable at upgraded level is also important after moving up in the eyes of international rating agency for the government, the upgrade serves as a strong rebuttal for critics who have panned its handling of the economy coming on the back of India’s rise in the World Bank’s ease of doing business index, and as a culmination of persistent efforts to get rating agencies to acknowledge India’s improved macroeconomic situation.
The great economist of nearly half a century, very well known as the visionary in financial world, Dr Manmohan Singh, who very strongly hold a protest in regard to yearly celebrations of demonetisation and attributing it as a black day in Indian history, to rightly comprehend Moody’s up gradation of Indian economy. Manmohan Singh should give his views and reasons that attribute it to be wrongly judged or he himself might have faulted. Yashwant Sinha is keeping his fingers crossed.
Basing its upgrade on the sustainable growth that reforms will trigger and the greater stability in government debt going forward, the agency also flagged the need for acting on other important fronts, which have yet to reach fruition such as planned land and labour market reforms.
Acknowledging that some steps such as the GST and demonetisation have ‘undermined’ growth in the near term as reflected by the slower GDP growth of 5.7 per cent in the first quarter of 2017-18, Moody’s said it expects real GDP growth in India to moderate to 6.7 per cent in this fiscal year. But the agency believes that the disruption effect of these reforms will fade as the government helps small and medium enterprises and exporters with compliance issues under the new indirect tax regime and growth will rise to 7.5 per cent in 2018-19, and remain robust, thereafter.
In long term analysis India’s growth potential is significantly higher than most other Baa-rated sovereigns. While a number of important reforms remain at the design phase, Moody’s believes that those implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth of the Indian sub-continent. Growth and development go hand in hand to achieve greater balance of Indian economy in the years to come.
(The views expressed by the author in the article are his/her own.)