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Moody's tells India to focus on reforms, policy effectiveness for better rating


New Delhi, Jan 10: Government's capacity to implement reforms and policy effectiveness will decide India's rating going forward, Moody's Investors Service said on Tuesday.

The US-based agency said that ongoing implementation of reforms is likely to boost India's medium-term growth. Measures including relaxation of foreign investment restrictions, passage of the Goods and Services Tax, and advancement of a workable bankruptcy code have potential to stimulate private sector investment, which could lead to stable, balanced growth and lower government's debt burden.


The positive outlook on India’'s rating is based on expectation that economic and institutional reforms will support continued robust growth, it said. Moody's has a 'Baa3' rating on India with a positive outlook.

"The capacity of governments to implement measures and the effectiveness of policies in achieving the respective governments' objectives will shape the sovereigns' credit profiles over the coming year," it said.

In addition to external trade and financing pressures, a key driver of sovereign credit trends will be the policy efforts of governments themselves, the agency said. Moody's said that authorities are formulating policies that range from those that address acute near-term challenges to those that set the stage for longer-term improvements in credit profiles.

However, capacities to implement these policies differ from country to country as is evident in Moody's scores for Institutional Strength, which vary greatly across the region.

It said, the 2017 outlook for creditworthiness of sovereigns in Asia Pacific is stable. Rising income levels and strengthening institutions will offer support to several sovereign credit profiles in the region.

"However, although GDP growth in the region remains relatively robust, lacklustre growth in global trade and capital outflows may weigh on the credit profiles of those more dependent on external demand or financing," Moody's said.

The credit outcomes in 2017 will be determined by the effectiveness of ongoing reform efforts and the evolution of political risks, said the report titled — Asia Pacific: 2017 Outlook — Stable Outlook Balances External, Political Risks Against Economic, Institutional Reforms.

In terms of the 24 sovereigns that Moody's rates in Asia Pacific, there were 18 stable outlooks as of January 2017, four negatives and two positives. Moody's GDP growth forecasts already take into account expectations of slow global trade, which are particularly relevant for export-reliant economies like Hong Kong, Korea, Singapore and Taiwan.

"The report points out that in the context of downside risks to the global growth outlook and the possibility of faster increases in US interest rates than investors currently assume, capital inflows to emerging markets could taper abruptly," Moody's said.


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