Moody's upgrades India's rating: What does it really mean?

Tejeesh Nippun Singh Behl        Last Updated: November 17, 2017  | 17:21 IST
Moody's upgrades India's rating: What does it really mean?

Introduction of the GST, benefits of the Direct Benefit Transfer (DBT) and recapitalisation of the public sector banks that are expected to result in fewer NPAs in the future, among other measures, led Moody's to upgrade its sovereign rating for India for the first time in 13 years.

Moody's Investor Service upgraded the Government of India's local and foreign currency issuer ratings by two notches, to Baa2 stable from Baa3 positive.

The last upgrade had happened in 2004, when Moody's had upgraded India's status to Baa3, which is the lowest investment grade and just a notch above junk status.

In simple terms, it means the cost of capital will reduce and more FDI is expected to flow in, as certain investors don't invest in countries rated below Baa3.

However, the government's debt is a cause for concern, noted Moody's - with the debt to GDP ratio at 66% in 2016 against a comfort level of 44% in this particular rating category.

This could severely hamper the government's ability to take any more debt for infrastructure projects, relying instead on issuing bonds, which may find greater acceptability due to the ratings upgrade.

Moody's & its moods - what the ratings mean

Source: Moody's

Numbers game
Ratings from Aa to Caa are further divided into three categories, by numeric codes 1, 2 & 3

Source: Moody's

Decoding the outlook
Each rating, with its numeric code, is further divided into three categories

Source: Moody's




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