Moody8217;s upgrades India8217;s rating

MUMBAI, OCT 7: There's good news for the incoming government at the Centre. US-based rating agency Moody's Investors Service has raised t...

MUMBAI, OCT 7: There8217;s good news for the incoming government at the Centre. US-based rating agency Moody8217;s Investors Service has raised the outlook to positive from stable for India8217;s BA28242; rating on foreign and domestic currency debt and maintained that Indian business confidence now seemed less affected by political instability than in previous years.

Moody8217;s has pointed out that the country8217;s balance of payments were resilient through the Asian/Russian crises, as well as through the international sanctions that were imposed following India8217;s May 1998 nuclear tests. 8220;In addition, the external debt maturity structure improved and foreign reserves strengthened in recent years, reducing the country8217;s vulnerability to external shocks,8221; the global rating agency said.

The new rating is likely to boost the inflow of foreign investment 8211; both FDI and portfolio 8211; to India. 8220;Foreign investors will put more money in Indian stocks. Domestic companies will be able to raise money from overseas markets at cheaperrates. It8217;s a good development for India,8221; said an analyst with a foreign brokerage.

8220;A stronger consensus has emerged across the political spectrum concerning the necessity for structural economic reform, although frequent political upheavals since 1996 have interrupted legislative advances and policy implementation,8221; Moody8217;s said.

In Moody8217;s opinion, the new government that emerges from the latest election is likely to stay in office longer than its recent predecessors even though its margin of victory appears to have remained quite small.

8220;A longer-lasting government would be able to undertake a more aggressive economic restructuring during its term of office,8221; it said. The economic recovery that has been underway since the start of the year appears to be linked to domestic factors, such as the restructuring of private enterprises and a marginal upgrading of infrastructure, as well as recovery in the Asian and European export markets.

Moody8217;s also said that Indian business confidence now seemsless affected by political instability than in previous years. The agency emphasised that the structural weaknesses of the Indian economy 8211; including chronic fiscal imbalances and the consequent need to maintain tight monetary policy, public sector inefficiency, infrastructure shortages, and low productivity 8211; remain profound constraints on India8217;s ratings.

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8220;Inflation has been artificially subdued this year because of the delay in raising administered prices. As a consequence, a backlash could ensue when adjustments are taken to reduce the burden of subsidies on the budget,8221; it said.

Over the next 18-24 months, Moody8217;s will closely monitor the new government8217;s ability to develop a coherent, growth-oriented macro-economic framework without succumbing again to narrow political schisms.

Reacting to a change in India8217;s credit rating outlook by Moody8217;s, Finance Minister Yashwant Sinha said on Thursday the change recognised the quot;inherent strength of the Indian economy.quot;

quot;I am happy that Moody8217;s haverecognised the inherent strength of the Indian economy and the recent improvement in it,quot; Sinha said in Hazaribagh, Bihar, from where he won re-election to Parliament.

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Sinha said he hoped that Moody8217;s would continue to show this kind of understanding even in future. 8220;India is a favoured destination and this Moody8217;s statement will certainly help in strengthening that conviction,8221; Sinha said in response to a question on how of the outlook revision would affect foreign investment in India.