Moody’s lifts India’s rating to Baa2, outlook stable

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the Moody’s Investors Services

Mains level: The new improvement in India’s rating can be seen as a positive effect of the GST and other reforms implemented by the government.


News

Improvement in ratings

  1. India’s sovereign rating has been upgraded by Global rating agency Moody’s Investors Services for the first time in 14 years, from Baa3 to Baa3
  2. Possible reason behind this: Due to central government ongoing reforms such as the new Goods and Services Tax (GST) regime and the mechanisms for resolving bad loans and re-capitalise ailing public sector banks

Difference between Baa2 and Baa3

  1. Baa2 are subject to moderate credit risk
  2. They are considered medium grade and as such may possess certain speculative characteristics
  3. Baa3, by contrast, was the lowest investment grade rating

On debt-to-GDP ratio

  1. Moody’s expects India’s debt-to-GDP ratio to rise by about one percentage point this fiscal year to 69% of GDP

Other comments by the rating agency

  1. The rating agency agreed that a lot remains to be done such as fixing the GST’s implementation challenges, weak private sector investment and the slow resolution of banking bad loans
  2. Moody’s said it expects at least some of these issues to be addressed over time and will help further improve the Indian government’s effectiveness and overall institutional framework

Back2basics

Moody’s Investors Service

  1. Moody’s Investors Service, often referred to as Moody’s, is the bond credit rating business of Moody’s Corporation, representing the company’s traditional line of business and its historical name
  2. Moody’s Investors Service provides international financial research on bonds issued by commercial and government entities
  3. Moody’s, along with Standard & Poor’s and Fitch Group, is considered one of the Big Three credit rating agencies
  4. The company ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss in the event of default. Moody’s Investors Service rates debt securities in several bond market segments
  5. These include government, municipal and corporate bonds; managed investments such as money market funds and fixed-income funds; financial institutions including banks and non-bank finance companies; and asset classes in structured finance
  6. In Moody’s Investors Service’s ratings system, securities are assigned a rating from Aaa to C, with Aaa being the highest quality and C the lowest quality
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