FinMin hails Moody’s outlook raise; hopes for ratings upgrade

Global ratings agency Moody’s upgrade of India’s long-term sovereign outlook brought cheers from the government, with Finance Ministry officials saying that it validated the government’s reform programme. Top policymakers added that they will push for a ratings upgrade.

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

Early on Thursday morning, Moody’s Investors Service revised India’s sovereign rating outlook to “positive” from “stable” on the back of actions by the Narendra Modi government, but maintained the rating at lowest investment grade.

“It affirms the positive programs and policies announced in the Budget. So, on the whole, it is good. I hope the next stage would be upgrading of the ratings itself,” Finance Secretary Rajiv Mehrishi told reporters on Thursday.

 “This upgrade of the outlook validates the direction of the government’s reform programme. It also confirms something that we have been saying for sometime now, that the growth prospects and the macro-economic prospects for the economy are improving,” Chief Economic Advisor Arvind Subramanian said in a media briefing.

“The budget was successful in being able to push for public investment and growth without compromising the commitment to fiscal discipline. That is an important point because that’s what credit rating agencies focus on. It kind of also validates the strategy in the budget,” Subramanian said.
Minister of State for Finance Jayant Sinha said that the NDA government had restored the faith of investors and rating agencies on the growth outlook of the Indian economy. “Moody’s decision continues to reaffirm that rating agencies, global investors and our own domestic businesses have faith in India’s growth outlook and our financial strength as a sovereign,” Minister of State for Finance, Jayant Sinha told reporters here. He reiterated that the economic situation had benefitted India has benefited from declining global oil prices.

“Those macro economic factors are very much in our favour and now what we have to work on is to ensure that sector by sector, industry by industry growth picks up so that the benefits follow through to consumers and businesses as well,” he said.

In its note, Moody’s said that the reaffirmation of the Baa3 rating was a reflection on India’s weaker performance — relative to peers – on fiscal, inflation and infrastructure-related metrics. 

“On Inflation, our assessment still is that the end year target of 6 per cent will be easily met. That target is set to surpass, on what we have said in the budget, at 5-5.5 per cent. On infrastructure, it’s now a matter of implementation. Railways has an ambitious programme. So that’s a matter of implementation. And the third thing is fiscal discipline, it could be determined by the policies that we have put in the budget and it will now also depend on how the economy performs, how tax revenues perform,” Subramanian said.

“We hope there is an investment upgrade going forward but that will not drive the policies,” he said.

On low oil prices, the Chief Economic Advisor said that the commodity may see a slight volatility over the coming year, but a huge increase or decrease wasn’t expected.

“On agricultural prices, I think there is a blip because of unseasonal rains. For the moment, the expectation is that this will not sustainably affect the medium term inflation target. Especially for this year if the monsoon forecast is good you have an offsetting impact. So for the moment we have to view it as a temporary blip up and not a permanent shift in the inflationary process,” he said.