US credit rating agency Moody's raised India's sovereign rating to Baa2 from its lowest investment grade of Baa, while changing the outlook for the country's rating to stable from positive.
Since 2004, Moody raised the sovereign rating for the first time ignoring a haze of short-term economic uncertainties to bet on the nation’s prospects from a raft of policy changes by the government.
The revision of sovereign rating of India came after a gap of 14 years.
The rating agency simultaneously upgraded India's local and foreign currency issuer rating to Baa2 from Baa3.
The 'Baa3' rating was the lowest investment grade, just a notch above 'junk' status.
Reason for upgrade
The upgrade of the rating is based on the Indian government's "wide-ranging programme of economic and institutional reforms.
The credit rating agency expected that continued progress on economic and institutional reforms will, over time, improve 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.
According to Moody’s, reforms which are taken place in India have significantly decreased the risk of a sharp increase in debt, even in potential downside scenarios.
Those implemented reforms to date will progress the government's purpose of improving the business climate, stimulating foreign and domestic investment, enhancing productivity, and ultimately fostering strong and sustainable growth.
According to Moody's, GST and demonetisation have undermined growth over the near term, however, it looks forward to real GDP growth to moderate to 6.7 percent in the fiscal year 2017-18.
But, as disruption fades, and with the help of recent government initiatives to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5 percent in 2018.
As per Moody's, though the high Indian debt burden remains a constraint on the country's credit profile, its longer-term growth potential is notably higher than most other Baa-rated sovereign economies.