The Moody’s Investors Service, a US-based credit ratings agency, last week upgraded India’s rating, from the lowest investment grade of Baa3 to Baa2 and changed the outlook from positive to stable. In practical terms, it can translate into cheaper credit for Indian companies and higher capital inflows as also a strong rupee (the last one is not a good thing for already sputtering exports). The spurt in the share markets on Friday following the Moody’s good chit testified to its significance. The upgrade, the Moody’s said, was the result of a renewed confidence in the Modi Government’s determination to press ahead with fundamental reforms.
In particular, the recent initiatives, such as demonetization and the implementation of the GST, were impressive as was the bid to resolve the problem of non-performing assets of the banking sector. Of course, there were some concerns such as the unfinished task of land and labour reforms, but, on the whole, the Government seemed to be on the right track pushing incrementally key economic reforms. Coming on the heels of the World Bank’s ease-of-doing-business report late last month, the twin pat constitutes a shot in the arm for the Modi Government. The WB had raised India’s standing a good 30 notches, putting it at one hundred among 190 countries in the year under review.
The WB report too noted various steps taken by the Government to facilitate various approvals required to set up a business and the removal of bottlenecks in its path. The on-going effort to digitize more and more areas of the economy drew a pat from the Bank. On Friday, a very happy Arun Jaitley committed himself to maintain fiscal discipline, saying that the Moody’s upgrade was a belated recognition of all the good work the Government had done to strengthen the economy. He had sounded skeptical a day earlier about the fiscal situation in view of the recent changes in the GST which could throw the revenue numbers out of kilter. The fiscal deficit target of 3.2 percent of GDP for the current financial year might become hard to meet given the recent giveaways on account of political expediency. Yet, the Finance Minister, following the Moody’s report, sounded confident of meeting the budgeted deficit target.
But, predictably, there were some sour faces around after the Moody’s upgrade. None sounded more churlish than the spokespersons of the Congress Party, with one suggesting that ‘Modi should fight elections abroad’. Such poisonous partisanship informs the Congress politics. Instead of conceding that some good work in the economic sphere was indeed done by the Government, it only pinned holes in the twin reports to paint a bleak picture of the economic situation. Of course, a lot needs to be done to spur the economy for it to grow at a decent clip, but to deny what has been done is to behave like a bad loser.
In fact, former prime minister, though careful not to sound peevish like his other Congress colleagues, pointed out that the economy was not out of the woods yet. There was need to be cautious now that the global crude prices were again moving up, having crossed $60 a barrel in recent days as against between $40-45 a barrel only a few days ago. The unstable conditions in West Asia can further push the crude prices higher. Meanwhile, former Finance Minister P Chidambaram taunted the Government for lapping up the Moody’s good chit, saying that only a few months ago it was making light of its ratings.
May be Chidambaram is right, but, then, a few months ago he had shown great faith in the testimonials from the Moody’s. Quite clearly, the Congress fears that the twin reports of the Bank and the Moody’s would provide further ammunition to the ruling party in the on-going Gujarat campaign. Top BJP ministers and party leaders have sought to make much of the Moody’s upgrade. But it must be borne in mind that there is a lot that remains to be done to put the economy on the path of sustained high growth. However, the acknowledgement of good work done so far by the Bank and the Moody’s can boost confidence and spur the Government further to press ahead on the path of reforms and development.