Moody's outlook upgrade significant; need to do more: Jaitley

Moody's had cited govt steps to improve economic strength for higher rating outlook; it said a rating upgrade could follow in 12-18 months

The Moody's upgrade of India's rating outlook to 'positive' from 'stable' is significant, but the government will have to do more, Finance Minister Arun Jaitley said today.

"Moody's has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant, but we've to do more," Jaitley said in a tweet.

Explaining the rationale behind the move, the global credit rating agency Moody's today said the government is taking steps to improve economic strength and stressed that a rating upgrade could follow in about 12-18 months.

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

The agency said favourable demographics, economic diversity as well as high savings and investment rates would act as a structural advantage for India.

Besides, relatively benign global commodity prices and liquidity conditions will keep India's growth higher, Moody's Investors Service added.

On affirming 'Baa3' rating, Moody's said it reflects India's weaker performance on fiscal, inflation and infrastructure-related metrics. "While policies are beginning to address each of these factors, the extent of likely improvements is as yet unclear."

The weak asset quality of banking system poses sovereign credit risks because of the sector's role in financing growth, it said, adding that in the absence of any improvement in the banking metrics in coming months, India's sovereign credit profile will remain constrained.

In the 2015-16 Budget, Jaitley had rolled out a new fiscal consolidation road map, which seeks to narrow the fiscal deficit to 3.9 per cent of GDP in 2015-16, and then gradually reduce it to 3 per cent in 2017-18.

He had said the growth will be over 8 per cent next fiscal and a double-digit rate is feasible soon. Hence, he decided to delay the fiscal consolidation programme by a year to put in more funds to bolster growth.