Global agency Moody’s on Tuesday said it will upgrade India’s rating if the government is able to push through reforms, inflation stabilises, regulatory environment improves and infrastructure investment rises.
“India’s rating could be upgraded if Moody’s expectations of gradual but credit positive reforms are realised in actual policy implementation and if the recent improvement in inflation, fiscal and current account ratios is sustained,” Moody’s Investors Service today said in a report.
The agency said that it had changed its outlook on India in April to positive from stable, based on premise that the proposed policies are likely to lower sovereign credit risk by stabilising inflation, improving the regulatory environment, increasing infrastructure investment while maintaining the ongoing improvement in fiscal ratios.
It has a ‘Baa3’ rating on India with a positive outlook. Since 2004, Moody’s has rated India at ‘Baa3’, the lowest investment grade- just a notch above ‘junk’ status.
The rating could be upgraded if these expectations “are reflected in policy progress and macroeconomic indicators over the next year, and if we view this progress as sustainable.”
But the rating outlook would likely return to stable if there was “a slowdown or reversal of the policy reform process, if banking system metrics continue to weaken, or if there is a decline in foreign exchange reserves coverage of external debt and imports,” it said.
It said lower oil prices as well as tighter fiscal and monetary policies have helped restore macroeconomic balance.
“But the consequence of tighter policies is that GDP and investment growth are likely to remain at levels that are lower than their peaks of a decade ago. Nonetheless, GDP growth — which we forecast at 7 per cent this year — is still likely to surpass the average for its peers, as it has over the last decade,” it said.
Stating that the Modi government has made some progress on reforms to improve the operating environment and ease investment procedures, Moody’s said the progress has stalled in two key areas — passing a unified Goods and Services Tax (GST) and the Land Acquisition Act.
The Moody’s statement came a day after the stock market benchmark Sensex crashed by 1,624.51 points – its biggest single-day fall – and over Rs. 7 lakh crore got wiped out within hours from the investors’ wealth.
“While the government had hoped to pass the unified GST during the monsoon parliamentary session, failure to do so despite cross-party support for the measure is an indication of the government’s challenges to overcome political gridlock in order to pass major structural reforms,” Moody’s said.
