Rating agency Moody’s Investor Services on Thursday upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive.
Credit ratings estimate a country’s ability to fulfill financial commitments. Baa1, Baa2 and Baa3 ratings indicate moderate credit worthiness. All three are considered medium-grade ratings.
Moody’s said India’s status was upgraded as it believes the government’s economic and institutional reforms will “enhance India’s high growth potential” over time.
“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,” Moody’s assessment said.
The agency called the recently-introduced Goods and Services Tax one of the key elements of India’s reform programme. It said the GST will “promote productivity by removing barriers to interstate trade”. Other measures such as addressing non-performing loans in the banking system, demonetisation, the Aadhaar system and the Direct Benefit Transfer system also helped push up the rating.
While Moody’s acknowledged that the impact of these measures will take time to reflect, and some, such as the GST and demonetisation, have undermined growth, it expects real GDP growth to moderate to 6.7% in the financial year ending in March 2018.