? Cool title, but what’s the news?
It took 13 years for the International Bond Rating Agency Moody’s Investor’s Services but they’ve finally upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. If you don’t understand what this means, let us tell you that this is a very good thing.
? Okay, so what does it mean?
Think of it this way, that the last time Moody’s upgraded India’s rating to ‘Baa3’, was about 13 Years ago. Now 13 years later, Moody’s has raised India’s sovereign rating a notch above investing grade.
This is what Moody’s said:
“The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term.”
The upgrade in rating has brought a much-needed boost to the BJP government that was under a lot of backlash for GST & Demonetisation’s effect on businesses. The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.
? I get it, now tell me why should I care?
For you Personally: Think of it this way, you’d want to buy your medicines from a well rated pharmacy, rather than a street hawker.
So essentially, India is touted to be the home of the world’s next billion customers. And that’s a lot of people and a lot of business potential. This increase in India’s credibility score from Moody’s is all confidence in the process of economic reforms that India is going through. The Indian Rupee is bound to grow stronger, and India’s position in the world stage better.
The Immediate Impact: Cost of International Borrowing becomes cheaper.
“Moody’s believes that those (reforms) implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.”
The sentiment in India’s equity market is hoped to improve with this move. And while the country’s large debt burden remains a concern, the agency believes that the reforms that have been put in place by the government are capable of reducing the risk of a sharp increase.
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