It is welcome and significant that Moody’s has revised and upgraded India’s credit rating, the first time since 2004. The revision, or, more accurately, the correction in Moody’s India’s credit outlook, does corroborate recent strong macroeconomic performance — India’s economy remains one of the best performing globally — and points to stronger macro-fundamentals going forward.
Other rating agencies like Standard and Poor’s and Fitch surely need to revise their India ratings as well. It is understandable that the global credit rating agencies are extracautious, after their quite sorry performance in the runup to the global financial crisis a decade ago, but they must duly take note of India’s sustained resilience and significant reforms.
Already, reports say that India’s tax-to-GDP ratio has risen to about 18%, following GST and quick course-correction seen in terms of GST rates and procedures. Besides, it is notable that the ongoing fiscal consolidation has stemmed central borrowings. Also, the multiple audit trails that GST is opening up would further widen India’s tax base, aided by the transparency inherent in rising popularity of digital payments.
It is also notable that bankruptcy resolution of highly stressed assets in the vexed banking sector has begun, and India’s global ranking when it comes to ease of doing business has considerably improved. There is much scope to significantly improve the rankings across several parameters with focused policy attention, especially regionally in the states and much-needed empowered of the main cities.
The rating upgrade is a vote of confidence that bank recapitalisation via bonds does not raise fears of fiscal slippage. Already, the rupee has strengthened. It should be possible for Indian corporates to raise money abroad at finer rates.
Besides, it is likely that the rating revision would help moderate the impact on India of monetary tightening by the US or European central banks. India’s improved fiscal performance and attendant reform measures should compel the rating agencies to further revise India sovereign rating.