Press Information Bureau

Government of India

Ministry of Finance

10-January-2012 17:24 IST

India's Sovereign Credit Ratings- Fourth Upgrade by Moody's Investor Services

On 20th December, 2011, Moody's Investor Services released a credit rating update for India. It upgraded the rating on long-term government bonds denominated in domestic currency from Bal to Baa3 (from speculative to investment grade). The long-term country ceiling on the foreign currency bank deposits was also upgraded from Bal to Baa3 (from speculative to investment grade). Apart from this, Moody's had upgraded the short-term government bonds denominated in domestic currency from NP(Not Prime) to P-3 (from speculative to investment grade). This short-term rating had been upgraded for the first time since it was newly assigned in1998.

In addition to the three upgrades above, there has been another upgrade by Moody's with the short —term country ceiling on foreign currency bank deposits increasing from NP (Not Prime) to P-3 (Prime: acceptable ability to repay short-term obligations).

In its Investors Services Global Credit research (released on 20th December, 2011), Moody's has underlined some of the Government's efforts at fiscal consolidation by appreciating that the "[Government] eliminated petrol subsidies and changed the way fertilizer subsidies are calculated, which may yield some budgetary savings. There have also been initiatives on the revenue front involving simplification (and hence hoped-for improvements in compliance) of indirect and direct taxes."

Moody's upgrade follows a positive rating action by Dominion Bond Rating Service (DBRS). It had been rating India's debt since June 2007. For the first time, in June 2011 they upgraded the trend of India's Long Term foreign and local currency debt ratings from BBB (low) Negative to Stable outlook.

Similarly, in its June 2011 report, Fitch affirmed the credit ratings issued the year before and appreciated the management of the economy by India. Fitch noted, "India's medium-term economic growth prospects remain strong, as potential GDP growth remains greater than 8%, well above the 'BBB'- range median."

India's sovereign debt is rated by six international sovereign credit rating agencies namely Standard and Poor's (S&P), Moody's Investors Service, Dominion Bond Rating Service (DBRS), Fitch Ratings, Japanese Credit Rating Agency (JCRA) and Rating and Investment Information (R&I). These agencies normally visit the Ministry of Finance and the Reserve Bank of India before making their credit assessment. DEA will continue to engage rating agencies on regular basis to impress upon them the long-term structural strengths and sound fundamentals of the Indian economy.

DSM/SS/GN

Sovereign credit rating upgrade signals investment grade status and recognition of fiscal consolidation boosting India's creditworthiness and engagement. Moody's upgraded India in December 2011, moving long term domestic currency government bond ratings and the long term country ceiling on foreign currency bank deposits from speculative to investment grade, and raising short term domestic and foreign currency ratings to a prime category, citing fiscal consolidation measures (fuel subsidy removal, fertilizer subsidy reform) and tax simplification initiatives expected to improve revenues and compliance; other agencies (DBRS, Fitch) had taken supportive actions and the Ministry of Finance and RBI engage regularly with rating agencies.