MOODY’s CHANGES THE MOODS, COMPLETELY!

about 2 years ago
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By Ruma Dubey

After Atal Bihari Vajpayee, it is Modi who did it – changed the moods of Moody’s!

The last upgrade that India had got the global rating agency was way back in 2004. 13 years later, Moody’s has once shown its faith in India’s reform process and upgraded our rating.

The rating agency upgraded India's rating to Baa2 from Baa3 and the outlook was changed from ‘positive’ to 'stable'.

Like the rest of us Indians, Moody’s too has given points to the long term story. In the note accompanying the rating, Moody’s has said, “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.”

Moody’s has stated that though ‘short term disruptions’ skewed the growth story, it expects India’s growth story to sustain at higher levels and this will help keep a lid on the Govt’s fiscal deficit target. The rating agency has put India’s GDP at 6.7% for FY18; our Finance Minister expects it to be at 7%.  The only threat, as well know and reiterated by Moody’s is the price of crude oil.

Moody’s has also warned India about the high debt burden and stated that this constraint is not going to vanish any time soon as the Govt will be forced to spend more on social welfare due to existing low levels of income. It has warned that the rating could go southwards again if the banking system’s health falls further and urged the Govt to also resolve land and labour market issues.

We all can discern this much – this is good news; an upgrade is always a good thing. But do we really know what this upgrade actually means?

When a rating agency says that it is upgrading or downgrading, it is talking about India’s creditworthiness – it is a tag which will indicate to the world whether India will repay or whether it is a default risk.

Putting us up by one notch, Moody’s has conveyed to the world that India is good for lending and more importantly, this upgrade will bring down our cost of borrowing in the international market; simply put, as the risk factor is now lower, India can issue its debt at lower interest rates.

Another BIG factor is the perception of the FIIs. Currently, looking at the way in which Indians themselves are pouring money into the market, FIIs or no FIIs, it does not seem to be a bother. But this rating might help the FIIs see what we Indians saw all along – the long term story.

Moody’s upgrade will most certainly impact our international standing very positively. In fact, in the entire BRICS basket, we are the only one who has got an upgrade; we stand at second place; China leads; Russia and Brazil are rated as subprime while South Africa was downgraded.

The markets are naturally thrilled and today it celebrated with an over 400 points jump up. The indices remain strongly in the green and overall mood is very optimistic.

This is a great feather in the cap of Modi Govt and kudos to them for their efforts. This upgrade is an applause for all the economic reform undertaken till date and will probably inspire the Govt to keep doing better.

There remain issues of unemployment, NPAs, poor private sector investment, sagging exports, environment but over a period of time, if growth spurs, all these too will get slowly resolved. For now though, let us enjoy the joy of an upgrade!

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