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Moody’s upgrades India’s outlook to positive, sovereign rating still a notch above junk

In a big vote of confidence in the Narendra Modi-led government, Moody’s on Thursday raised India’s credit rating outlook to ‘positive’ and said an upgrade in its sovereign rating is also possible in the next 12-18 months.

India’s sovereign rating currently stands at ‘Baa3’, the lowest investment grade — just a notch above ‘junk’ status.

The sovereign rating and outlook for a country are often referred to as key parameters by foreign investors and global bodies to gauge its investment climate.

Upgrading the outlook from ‘stable’ to ‘positive’, the global rating agency said that India has grown faster than many other peers over the last decade and the actions of the policymakers should further boost the country’s economic and financial strength in coming years.

Commenting on the upgrade, Finance Minister Arun Jaitley said the action is “significant”, but the government has to do more.

“Moody’s has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we’ve to do more,” Jaitley tweeted.

Moody’s sovereign rating analyst Atsi Sheth told PTI, “Our positive rating outlook for India reflects our view that the probability has now increased that over the next twelve to eighteen months India’s sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating.”

Moody’s, however, said that the Indian economy is still heavily exposed to external and financial shocks because of which it has maintained ‘Baa3’ rating for the country.

Since 2004, Moody’s has rated India at Baa3 — at par with countries like Indonesia, Iceland and Turkey.

Other global agencies — S&P and Fitch — also have the same credit rating for India on grounds including high inflation, huge debt levels of the central and state governments, infrastructure sector problems and huge bad loans in the banking system.

Standard & Poor’s had recently upgraded its India outlook to ‘stable’ while Fitch Ratings has had a ‘stable’ outlook for the country’s credit rating since 2013.

The agency said that a rating upgrade going forward would depend on these positives propelling growth.

“There is an increasing probability that actions by the policymakers will enhance the country’s economic strength and, in turn, the sovereign’s financial strength over coming years,” Moody’s said.

“India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates,” it added.

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