After Moody’s positive rating, all eyes now on S&P verdict

After Moody's positive rating about Indian economy, the government, especially Finance Ministry, is awaiting rating agency Standard & Poor’s (S&P’s) verdict on the country. The judgment is expected today. 

Policy experts expect that there are enough grounds for a further upgrade.

According to a newspaper report, India has concurrently improved in 6 out of 10 categories in the Ease of Doing Business rankings. India has also improved in 9 out of 10 categories despite rating system being tough and systemically biased against developing countries. This is primarily due to a high weightage given to per capita GDP and debt to GDP ratios, which continue to drag us down. 

It may be noted that an upgrade from S&P will be a positive for the bond market and it may reduce interest costs for both the government as well as companies raising funds from abroad. 

Earlier in October, the S&P has kept India’s sovereign rating unchanged at the lowest investment grade with a stable outlook. After that the government announced a recapitalization plan for the public sector banks and made the requisite changes to ease the pain points in the GST rollout.

Recently, Moody’s has upgraded India’s sovereign ratings to Baa2 from its lowest investment grade Baa3 citing the BJP-led NDA government’s “wide-ranging programme of economic and institutional reforms” among the reasons for the move. 

The upgrade has been accompanied by a change in the outlook for India’s rating to “stable” from “positive.” The markets including stocks, bonds and rupee rallied on the upgrade.

However, Moody’s also warned that India’s rating could be downgraded if its fiscal metrics and the outlook for general government fiscal consolidation deteriorates. 

A sovereign ratings reflects a nation's risk profile and a ratings upgrade is likley to enhance India’s position as an investment destination for foreign investors.