May consider rating upgrade if reforms come through: Moody's

Global rating agency Moody's Investors Service on Sunday said it could consider India for a rating upgrade if the government is successful in introducing more growth enhancing economic and institutional reforms.

Policies like relaxation of thresholds for FDI and a change in the monetary policy framework that fosters credibility will contribute to more stable economic environment, said Marie Diron, Senior VP (Sovereign Risk Group) Moody's Investors Service.

"Evidence that India's policymakers are likely to be successful in their efforts to introduce growth-enhancing and growth-stabilising economic and institutional reforms would lead to the rating being considered for an upgrade," Diron told PTI.

Last year in April, Moody's had changed India's rating outlook to 'positive' from 'stable' citing reform momentum and said it could consider India for an upgrade in next 12-18 months.

India's sovereign rating by Moody's stands at 'Baa3', the lowest investment grade and just a notch above 'junk' status.

Moody's said the positive outlook on rating reflects our expectation that policies will support a more stable macroeconomic environment, with sustained growth accompanied by narrower fiscal deficits, low current account deficits, increased savings and investment, and inflation that is within the central bank's targets.

"Other measures have been delayed like the GST and now likely to be implemented, with credit positive effects in the medium term. Other reforms have proven more politically difficult so far like land and labour reform," Diron said.

She, however, cautioned that the rating outlook could be revised to stable if economic, fiscal and institutional strengthening appeared unlikely, or banking system metrics remained weak or balance of payments risks rose.

The government had in June announced FDI liberalisation in nine sectors such as civil aviation, retail and private security services. This was the current government's second round of relaxation in FDI rules.

Besides, in past two months the government has taken initiatives like inflation targeting monetary policy, and also secured Parliament approval for passage of the bankruptcy, Sarfaesi and DRT laws and above all the long pending GST.

Stating that consensus-based decisions are often slower to achieve, Diron said other reforms may follow the same process with long delays followed by breakthroughs as and when the political mix allow.