Moody’s upgrade recognition to govt.’s reforms: CEA Arvind Subramanian

Welcoming global rating agency Moody's upgrading India's sovereign rating to 'stable', Chief Economic Adviser Arvind Subramanian on Friday said it was a recognition to government's reforms.

In a tweet, Mr. Subramanian said the upgrade was a "long overdue as our analysis showed" sharing a link to Economic Survey 's ‘ Economic Outlook and Policy Challenges’ chapter. He further said it was recognition to financial reforms taken up in recent times, such as GST, re-capitalisation of PSU banks, bankruptcy code and macro-stability. The government's focus is on domestic objectives, he added.

Asked if he expects other agencies like S&P and Fitch to upgrade, he said: “Let’s hope they are not inconsistent amongst each other.”

Economic Affairs Secretary Subhash Chandra Garg said the upgrade is definitely a big vindication of the structural and institutional reforms that India is doing.

“The fiscal deficit consolidation, debt control and all so everything which the government has done in the past couple of years have been recognised. They are projecting a little rise in the trajectory going forward, so they are conscious of the real dynamics of the debt situation. We, of course, remain committed to the fiscal path,” Mr. Garg said.

Finance Secretary Hasmukh Adhia also said the path that the government has chosen for long-term reforms and fiscal consolidation is well recognised by investors already.

“The rating agency too has now confirmed it formally, which is welcome,” Mr. Adhia tweeted.

“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 rating agency said in a statement.

While it acknowledged that some steps such as the GST and demonetisation have ‘undermined’ growth in the near term, Moody’s said it expects real GDP growth in India to moderate to 6.7% in 2017-18.

However, it stressed that the disruption effect of these reforms fade and the government helps small and medium enterprises and exporters with compliance issues under the new indirect tax regime, growth will rise to 7.5% in 2018-19 and similarly robust growth thereafter.