Moody’s may upgrade credit rating

In a move which will boost the sagging sentiments across the economy, Moody’s Investors Service said on Thursday that it has placed the...

In a move which will boost the sagging sentiments across the economy, Moody’s Investors Service said on Thursday that it has placed the credit rating of India on review for a possible upgrade. India’s ‘Ba2’ foreign currency country ceiling for debt and ‘Ba3’ foreign currency country ceiling for bank deposits are on review. ‘The review is primarily based on the substantial strengthening of the country’s external financial situation,’ Moody’s said in a statement.

The foreign currency issuer rating for India — the proxy for the rating that would likely be assigned were the government to issue a foreign currency-denominated bond in the international capital markets — has also been placed on review for possible upgrade. The Moody’s move will lead to higher foreign portfolio investment in stocks and direct investment in projects in the long term, analysts said.

At present, however, the government has no such bonds outstanding nor are there any rated government-guaranteed euro bonds outstanding, Moody’s said. But the Ba2 domestic currency bond rating of the government is not on review and the outlook on that rating remains negative due to continuing stress in India’s internal finances and last year’s broad-based reduction in import tariffs.

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In fact, Moody’s upgrade news comes within two months of Standard and Poor’s downgrading India’s local currency debt ratings to “junk” status. S&P cut local debt ratings to junk bond levels on Thursday, citing a mounting debt burden and vulnerable public finances. It cut the long-term local currency sovereign rating to BB-plus from BBB-minus and the short-term rating to B from A3.

The S&P move was contested by the finance ministry officials. “We have had very good export growth so far. Industrial growth till this time has also been good and major fears of drought have fortunately receded,” finance secretary S. Narayan had gone on record about the impact of S&P downgrade on economic growth. He had said the downgrade would also not affect the government borrowing programme.

Narayan said besides India’s internal debt being well under control, the country is not dependent too much on external debt. “Ninety-eight per cent are domestic borrowing. The downgrading will not affect government’s borrowing programme,” he said.