Moody’s Investors Service, expressing optimism in the efforts of the new government and the Reserve Bank of India, has raised the rating outlook of the country to positive. Though, the country’s Baa3 rating (the lowest investment grade) was affirmed but the outlook was revised from stable to positive on increasing probability that actions by policymakers will enhance the country’s economic strength and, in turn, the sovereign’s financial strength over coming years. Moody's has also affirmed India's P-3 short-term local currency issuer rating.
The rating agency has said that India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates. Moody’s expects these structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India's growth higher than that of its peers over the rating horizon.
Moody’s believes that recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India's sovereign credit constraints.
According to Moody's, India’s budget prioritizes growth over deficit reduction. The new budget contains several measures that, if effectively implemented, will accelerate India's GDP growth. These include greater public spending allocations to infrastructure, as well as incentives for private sector investment in the sector. Moody’s has further added that the ability of policymakers to strengthen India's sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months.
