For those who had written of Prime Minster Narendra Modi for his unprecedented economic reforms , can sit back and relax as the sovereign rating released by the Moody’s Investor’s Services has hailed Modinomics for his bold decisions namely the roll out of Goods and Services Tax initiative.
For the first time in 14 years India’s sovereign bonds rating was lifted from its marginal investment grade of Baa3 to a commendable Baa2. The Moody’s rating comes just a weeks after the World Bank moved India 30 places up in its annual ease of business transaction rankings. This has also changed India’s credit ratings from positive to stable.
Financial markets leaped at the upgrade. The BSE Sensex froze at 33,342.80 points, up 235.98 or 0.71%, while the Nifty closed at 10,283.60, up 68.85 or 0.67%. The rupee closed at 65.02 per dollar, up 0.47% from its previous close.
Bond prices, which move in opposition direction to yields, erased all the gains and closed little changed. The 10-year bond yield slid 13 basis points, its steepest fall since 16 May, before closing flat at 7.05%.
As soon as the ratings were displayed the rupees, stocks and bonds rallied putting India in the same position as Philippines and Italy in the investment grade rankings.
Sovereign ratings are the bench mark of a country’s credit profile and regulatory reforms initiated by the government.
A positive ratings helps governments and companies raise capital in global markets, also it captures a country’s socio-economic climate for institutional investors to make major investment decisions.
The Moody’s upgrade certainly visualizes a major uplift compared to the status of economy in 2012 under the ‘reformist’ Manmohan Singh led UPA government.
It was that recession period, when India’s economic policies dovetailed and global rating agencies almost pushed it to a “junk” status. So hats off to the Modi government because the last time India received an upgrade was during the Vajpayee government.
Back in 2012 the government was facing multiple global challenges-the crude oil prices were steep and the global financial and European debt crisis trapped India into a risk mitigation mode rather than pushing for reforms. 2017 has seen lower crude oil prices, leading to control over inflation rate giving the government fiscal benefit from excise duty.
Moody’s believes that the reforms undertaken by the government will certainly create a feasible business environment enhance its productivity, attract more foreign direct investments and ensure strong and sustainable growth of economy.
Chief Economist of Mahindra and Mahindra Sachhidanand Shukla says some of the key economic policies like MPC, GST, bank capitalization, demonetization, Aadhar, and bankruptcy code have worked in favour of this ratings upgrade.
Some of Narendra Modi’s peers see it as a milestone of success as a head of the state, after the US based Pew research group released a report claiming 9 out of 10 Indians have a favorable opinion on Modi.
Finance Minister Arun Jaitley told reporters that the Moody’s upgrade was a “belated recognition” of Prime Minister Modi’s efforts to fix India’s $2 trillion economy.
He also maintained that the government will work towards fiscal consolidation and try to stick the fiscal deficit to 3.2 % of GDP by March 2018 and stretch it further to 3 % by 2018/19.
“We will maintain the fiscal discipline,” he said, expressing faith in the current policies which will let India soar to a stronger financial position.