India's sovereign rating may move up one notch - Views on News from Equitymaster

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India's sovereign rating may move up one notch

Jan 28, 2000

According to newspaper reports, both Moody Investor Service and Standard and Poor (S&P) could upgrade India's sovereign rating by one notch in view of the recent reforms passed by the government. The government's recent initiatives that have led to a rethink on India's sovereign rating include:

  • Passage of the insurance regulatory authority bill
  • Liberalising ADR/GDR issues of local companies
  • Declining interest rates as signaled by a cut in the small savings and provident fund rate

However, there are still some concerns:

  • A low tax to GDP ratio
  • High debt burden
  • The tense geopolitical situation

It has been generally accepted that the present government is prepared to take tough decisions in order to unleash second generation reforms. The move is essential in view of the near stagnation in the reform process that created doubts over India's commitment to reforms over the last couple of years.

An upgrade in India's rating will benefit the country in a number of ways. First, accessing foreign debt markets will become more economical for the government and domestic companies, as the risk attached to such debt would reduce. Second, India's attractiveness in terms of investment opportunities would increase leading to an inflow of foreign funds. This will help finance the investment boom in the country that is likely to be stimulated by the infrastructure sector. Generally speaking, there will be an overall improvement in India's economic outlook in the international markets.

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