New Delhi: Finance Minister Arun Jaitley today welcomed Moody's Investors Service's first upgrade in nearly 14 years of its ratings on India's sovereign bonds, calling it a "belated recognition of the positive steps taken in last few years to strengthen the economy." Mr Jaitley also hit out at critics of the government's economic policies saying, "many who had doubts about India's reform process can now seriously introspect on their position."
The Finance Minister said the upgrade was recognition and endorsement that "a number of structural reforms in the last three years have placed India on a path of high trajectory growth," and also that "India continues to follow a path of fiscal prudence which has brought stability."
Moody's said on Friday that it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive, saying continued progress on economic and institutional reform will boost the country's growth potential.
The upgrade, Moody's first since January 2004, moves India's rating to the second lowest level of the investment grade.
It is a big boost for Prime Minister Narendra Modi's government and the reforms it has pushed and comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings.
All markets including stocks, bonds and the rupee rallied on the ratings upgrade.
The upgrade also comes just ahead of crucial assembly elections in PM Modi's home state Gujarat, where Congress vice president Rahul Gandhi has based his party's election campaign around an attack on the government over an economic slowdown, with growth slipping under 6 per cent in the June quarter. The Congress has blamed last year's demonetisation and its implementation of new national tax GST in July this year.
Mr Jaitley said, "steps, including demonetisation, among others is taking India into a digitised economy. Implementation of Aadhaar has also been a very significant step. Also, the GST, which the world has recognised as one of the most significant reform steps taken in the history of Independent India."
He refused to link today's development to the forthcoming elections saying, "In India, elections happen three or four times each year. That being the case, if everything is only linked to elections, then there would not be any steady economic development and growth. All of us will only be engaged with elections and speeches."
Sitting next to Mr Jaitley, Chief Economic Advisor to the government Arvind Subramanian said, "I think we should all keep in mind that ratings are not causes or motivators of government actions, they are welcomed collateral consequences of government actions. "
Moody's has noted that while a number of key reforms remain at the design phase, it believes those already implemented will advance the government's objective of improving the business climate, enhancing productivity and stimulating investment.
"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns," the agency said.
It said GST will boost productivity by removing barriers to inter-state trade, also pointing out that challenges from the implementation of the new tax regime, continuing weakness in private sector investment, slow progress resolving banking sector asset quality issues, and lack of progress in land and labour reform remain key issues.