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Moody's upgrades India's government bond rating to Baa2 from Baa3

Discussion in 'World Economy' started by PARIKRAMA, Nov 17, 2017.


    PARIKRAMA Captain IDF NewBie

    Mar 24, 2016
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    Moody's upgrades India's government bond rating to Baa2 from Baa3; changes outlook to stable from positive

    Global Credit Research - 16 Nov 2017
    New York, November 16, 2017 -- Moody's Investors Service ("Moody's") has today upgraded the Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. Moody's has also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

    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. In the meantime, while India's high debt burden remains a constraint on the country's credit profile, Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

    Moody's has also raised India's long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.




    The government is mid-way through a wide-ranging program of economic and institutional reforms. While a number of important reforms remain at the design phase, Moody's believes that those implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth. The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness.

    Key elements of the reform program include the recently-introduced Goods and Services Tax (GST) which will, among other things, promote productivity by removing barriers to interstate trade; improvements to the monetary policy framework; measures to address the overhang of non-performing loans (NPLs) in the banking system; and measures such as demonetization, the Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system intended to reduce informality in the economy. Other important measures which have yet to reach fruition include planned land and labor market reforms, which rely to a great extent on cooperation with and between the States.

    Most of these measures will take time for their impact to be seen, and some, such as the GST and demonetization, have undermined growth over the near term. Moody's expects real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018 (FY2017). However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY2018, with similarly robust levels of growth from FY2019 onward. Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns.


    Moody's also believes that recent reforms offer greater confidence that the high level of public indebtedness which is India's principal credit weakness will remain stable, even in the event of shocks, and will ultimately decline.

    General government debt stood at 68% of GDP in 2016, significantly higher than the Baa median of 44%. The impact of the high debt load is already mitigated somewhat by the large pool of private savings available to finance government debt. Robust domestic demand has enabled the government to lengthen the maturity of its debt stock over time, with the weighted average maturity on the outstanding stock of debt now standing at 10.65 years, over 90% of which is owed to domestic institutions and denominated in rupees. This in turn lowers the impact of interest rate volatility on debt servicing costs since gross financing requirements in any given year are moderate.

    In addition, however, measures which increase the degree of formality in the economy, broaden the tax base (as with the GST), and promote expenditure efficiency through rationalization of government schemes and better-targeted delivery (as with the DBT system) will support the expected, though very gradual, improvement in India's fiscal metrics over time. Moody's expects India's debt-to-GDP ratio to rise by about 1 percentage point this fiscal year, to 69%, as nominal GDP growth has slowed following demonetization and the implementation of GST. The debt burden will likely remain broadly stable in the next few years, before falling gradually as nominal GDP growth continues and revenue-broadening and expenditure efficiency-enhancing measures take effect.


    Government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, including through demonetization and GST, both illustrate and should contribute to the further strengthening of India's institutions. On the fiscal front, efforts to improve transparency and accountability, including through adoption of a new Fiscal Responsibility and Budget Management (FRBM) Act, are expected to enhance India's fiscal policy framework and strengthen policy credibility.

    Adoption of a flexible inflation targeting regime and the formation of a Monetary Policy Committee (MPC) have already enhanced the transparency and efficiency of monetary policy in India. Inflation has declined markedly and foreign exchange reserves have increased to all-time highs, creating significant policy buffers to absorb potential shocks.

    Much remains to be done. Challenges with implementation of the GST, ongoing weakness of private sector investment, slow progress with resolution of banking sector asset quality issues, and lack of progress with land and labor reforms at the national level highlight still material government effectiveness issues. However, Moody's expects that over time at least some of these issues will be addressed, resulting in a steady further improvement in India's government effectiveness and overall institutional framework.


    Recent announcements of a comprehensive recapitalization of Public Sector Banks (PSBs) and signs of proactive steps towards a resolution of high NPLs through use of the Bankruptcy and Insolvency Act 2016 are beginning to address a key weakness in India's sovereign credit profile.

    While the capital injection will modestly increase the government's debt burden in the near term (by about 0.8% of GDP over two years), it should enable banks to move forward with the resolution of NPLs through comprehensive write-downs of impaired loans and increase lending gradually. Over the medium term, if met by rising demand for investment and loans, the measures will help foster more robust growth, in turn supporting fiscal consolidation.


    The stable outlook reflects Moody's view that, at the Baa2 level, the risks to India's credit profile are broadly balanced.

    The relatively fast pace of growth in incomes will continue to bolster the economy's shock absorption capacity. And even in periods of relatively slower growth, as seen recently, stable financing will mitigate the risk of a sharp deterioration in fiscal metrics.

    However, the high public debt burden remains an important constraint on India's credit profile relative to peers, notwithstanding the mitigating factors which support fiscal sustainability. That constraint is not expected to diminish rapidly, with low income levels continuing to point to significant development spending needs over the coming years. Measures to encourage greater formalization of the economy, reduce expenditure and increase revenues will likely take time to diminish the debt stock.


    The rating could face upward pressure if there were to be a material strengthening in fiscal metrics, combined with a strong and durable recovery of the investment cycle, probably supported by significant economic and institutional reforms. In particular, greater expectation of a sizeable and sustained reduction in the general government debt burden, through increased government revenues combined with a reduction in expenditures, would put positive pressure on the rating. Implementation of key pending reforms, including land and labor reforms, could put additional upward pressure on the rating.


    A material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating. The rating could also face downward pressure if the health of the banking system deteriorated significantly or external vulnerability increased sharply.

    GDP per capita (PPP basis, US$): 6,694 (2016 Actual) (also known as Per Capita Income)

    Real GDP growth (% change): 7.1% (2016 Actual) (also known as GDP Growth)

    Inflation Rate (CPI, % change Dec/Dec): 3.9% (2016 Actual)

    Gen. Gov. Financial Balance/GDP: -6.4% (2016 Actual) (also known as Fiscal Balance)

    Current Account Balance/GDP: -0.7% (2016 Actual) (also known as External Balance)

    External debt/GDP: 20.4% (2016 Actual)

    Level of economic development: High level of economic resilience

    Default history: No default events (on bonds or loans) have been recorded since 1983.

    On 14 November 2017, a rating committee was called to discuss the rating of the India, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutional strength/ framework have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer's susceptibility to event risks has not materially changed.

    The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

    The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.


    Short term we move into Upper Medium Grade and Lt we are now almost at the borderline of Lower Medium and Upper medium Grade

    Should spell very very positive for PM Modi Government and a nod for more inflows and investments..
  2. Som Thomas

    Som Thomas 2nd Lieutant FULL MEMBER

    Nov 16, 2016
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    Wolfpack, proud_indian and PARIKRAMA like this.
  3. Agent_47

    Agent_47 Admin - Blog IDF NewBie

    Aug 3, 2011
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    PARIKRAMA likes this.
  4. sangos

    sangos Lt. Colonel ELITE MEMBER

    Apr 25, 2013
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    Screw this. Lets have our own ratings period.
  5. Hindustani78

    Hindustani78 Lieutenant FULL MEMBER

    Nov 20, 2017
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    New Delhi, November 19, 2017 14:33 IST
    Updated: November 19, 2017 14:53 IST

    Economic Affairs Secretary Subhash Chandra Garg. File | Photo Credit: PTI

    The RBI’s profit was about ₹44,000 crore, of which ₹30,000 crore has been distributed and ₹13,000 crore it retained towards risks and reserves.

    The government has not asked the Reserve Bank of India (RBI) to pay any special dividend and is only seeking ₹13,000 crore of surplus lying with the Central bank, Economic Affairs Secretary Subhash Chandra Garg has said.

    In August, the RBI had paid a dividend of ₹30,659 crore for the fiscal ended June 2017. It was less than half the ₹65,876 crore it had paid in 2015-16.

    The government had budgeted for a ₹58,000 crore dividend from the RBI in its budget for this fiscal year.

    “There is no proposal at this stage to ask for any special dividend. What is being discussed is to only ask for what the RBI earned this year but did not distribute. That is about ₹13,000 crore. That’s what the government has suggested the Reserve Bank to transfer,” Mr. Garg told PTI.

    The RBI’s profit was about ₹44,000 crore, of which ₹30,000 crore has been distributed and ₹13,000 crore it retained towards risks and reserves. So the government has made a suggestion that the ₹13,000 crore may also be transferred, he said.

    The government last month announced an unprecedented ₹2.11 lakh crore capital infusion in PSU banks, which are grappling with high non-performing assets (NPAs).

    Asked about the contours of the recap bonds, Mr. Garg said “the recapitalisation package is in the final stages. The Department of Financial Services is working on it and soon we would see all these aspects being addressed.”

    Of the ₹2.11 lakh crore, ₹1.35 lakh crore would be infused through recapitalisation bonds and the remaining ₹76,000 crore through budgetary support and banks diluting equity in capital market.

    Credit rating agency Moody’s last week upgraded India’s sovereign rating after a gap of over 13 years citing reform push and steps being taken by the government to solve the high NPA problems in the banking sector.

    Bad loans in the sector have neared ₹10 lakh crore.

    Mr. Garg said Moody’s has acknowledged the reform process and believes that India is in a position to control its debt and put its banking sector in order.

    “The kind and quality of reforms, the boldness of reforms, the structural, fundamental needs of reform is what has persuaded them to believe that India is now on a longer term high growth path ...That [reform] process will continue and I don’t see any slackening in reform effort,” he said.

    The U.S.-based rating agency cited government efforts to reduce corruption, formalise economic activity and improve tax collection and administration, including through demonetisation and GST, as well as improvements to the monetary policy framework and measures to clean up non-performing loans as reform steps which would foster sustained economic growth.

    On privatisation of Air India, Mr. Garg said it is progressing “reasonably steadily” and the plan about how to privatise has also been broadly worked out.

    Asked if it would happen in the current fiscal, Mr. Garg said, “I won’t put a timeline on when this is likely. Air India is not just one company, there are other assets.”

    The government has ‘in-principle’ decided to disinvest the Air India group as a whole or its constituents fully or part thereof through the strategic sale with transfer of management control.

    Air India has a debt burden of more than ₹50,000 crore.

    The Cabinet, in June, decided on strategic disinvestment of the loss-making Air India, which is staying afloat on taxpayers’ funds, and a ministerial panel is working on the modalities.
  6. Hindustani78

    Hindustani78 Lieutenant FULL MEMBER

    Nov 20, 2017
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    Prime Minister's Office
    29-May, 2018 11:31 IST
    PM interacts with MudraYojana beneficiaries across the country through video bridge

    The Prime Minister, Shri Narendra Modi, today interacted with Mudra Yojana beneficiaries from across the country, through video bridge. The video conference is the second in the series of video bridge by the Prime Minister, interacting with various beneficiaries of Government schemes.

    Expressing happiness at being able to interact with the beneficiaries, the Prime Minister said that the Mudra Yojana has become a job multiplier. He further added that the initiative has helped in relieving the entrepreneurs from the vicious cycle of moneylenders and middlemen. It has opened up new opportunities for youth, women and those who wanted to start or expand their businesses.

    Under Pradhan Mantri MUDRA Yojana, Government has so fargiven out 12 crore loans worth Rs. 5.75 lakh crore. Out of which 28% of the loans worth Rs. 3.25 lakh crore were given to first time entrepreneurs.Of the total loans disbursed, 74% of the total beneficiaries were women and 55% of the loans were given to SC/ST and OBC communities.

    Prime Minister, while addressing the PMMY beneficiaries, said that the scheme has transformed the lives of the poor. He said that by aiding small and micro businesses, the scheme has helped to strengthen people economically, socially and has given people a platform to succeed.

    Emphasizing on creating self-employment, Prime Minister said that being self- employed is a matter of pride now and has helped people in achieving things that were considered impossible before.

    During the interaction, Prime Minister said that if Mudra Yojana was implemented a few years ago, it would have helped lakhs of people to set up their own businesses and would have stopped migration to a great extent.

    Interacting with the Prime Minister, beneficiaries explained how Mudra Yojana has helped to set up their own business and thereby helped to create employment for others.

    Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by Prime Minister on April 8, 2015 for providing loans up to Rs. 10 lakh to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs.

  7. Hindustani78

    Hindustani78 Lieutenant FULL MEMBER

    Nov 20, 2017
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    Ministry of Finance
    29-May, 2018 13:05 IST
    Loan Agreement for USD 21.7 Million for Strengthening the Public Financial Management in Rajasthan Project;

    Project to contribute to improved Budget Execution, enhanced Accountability and greater efficiency in Revenue Administration in Rajasthan.

    An Agreement for IBRD Credit of USD 21.7 Million for the Strengthening of Public Financial Management in Rajasthan Project was signed here today in New Delhi by Shri Sameer Kumar Khare, Joint Secretary (FB and ADB), Department of Economic Affairs, Ministry of Finance on behalf of the Government of India.

    The Implementing Entity Agreement was signed by the Secretary, Finance (Budget) on behalf of the Government of Rajasthan, and the Acting Country Director (India) on behalf of the World Bank.

    The Project size is approximately USD 31 million, of which USD 21.7 million will be financed and the remaining amount will be funded-out of the State Budget. The Project duration is 5 years.

    The Project objective is to contribute to improved Budget execution, enhanced accountability and greater efficiency in Revenue Administration in Rajasthan. The Project involves Strengthening of the Public Financial Management Framework; Strengthening of Expenditure and Revenue Systems; and Project Management and Capacity Building among others.


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