Moody's Investors Service raised India's sovereign rating for the first time since 2004, overlooking a haze of short-term economic uncertainties to bet on the nation's prospects from a raft of policy changes by Prime Minister Narendra Modi.
Rupee, bonds and stocks rallied after the ratings firm upgraded India to Baa2 from Baa3 and said reforms being pushed through by Modi's government will help stabilize rising levels of debt.
That's a one-level shift from the lowest investment-grade ranking and puts India in line with the Philippines and Italy.
While government officials hailed the move as long overdue, some investors termed it a surprise given that India recently surrendered its status as the world's fastest-growing major economy amid sweeping policy change.
The upgrade could prove to be a big win for the ruling party, which is facing increasing attacks about the economic slowdown before key elections in Modi's home state next month and a national vote early 2019.Credit Rating: Know More
- A credit rating is an assessment of the creditworthiness of a borrower. Individuals, corporations and governments are assigned credit ratings - whoever wants to borrow money. Individuals are given 'credit scores', while corporations and governments receive 'credit ratings'.
- National governments, not countries, are assigned credit ratings by agencies like Standard & Poor's, Moody's and Fitch.
- Governments require ratings to borrow money. They are also given ratings on their worth as investment destinations.
- A country requests a credit rating agency to evaluate its economic and political environment and arrive at a rating. This is done to position itself as a destination for foreign direct investment.
- There are several criteria behind rating a government's creditworthiness. Among them are political risk, taxation, currency value and labour laws.
- Another is sovereign risk where a country's central bank can change its foreign exchange regulations.
- For the first time in 14 years, Moody's has upgraded India's rating to Baa2, a term that means that they consider the economy stable.
- Standard & Poor's and Fitch too have a 'stable' rating for the country - BBB+ and BBB-, respectively.