Bankers & Industry Captains Express Optimism On Economic Prospects Post-Moody's Upgrade
India's economic prospects are expected to gain momentum post-Moody's upgrade of India's sovereign rating drawing praises from bankers and industry captains on the Modi government's reform program. Bankers have pointed that the global rating agency has taken cognizance of India's higher growth potential and economic resilience.
Chanda Kochar, MD and CEO, ICICI Bank expressed her optimism on the structural reforms undertaken by the government. "This is a well-deserved recognition of the structural reforms that have been undertaken by this Government over the past couple of years. It is also very heartening to note that Moody's has taken cognizance of India's higher growth potential and increased economic resilience as compared to other countries in our rating cohort," Kochar said.
Bankers also noted that the rating overdue was long overdue and that the government's path of fiscal prudence is now paying off. "The long overdue sovereign rating upgrade for India is an endorsement of institutional and structural transformations ushered in by the government in the last few years while maintaining fiscal prudence," said Rana Kapoor, MD and CEO, Yes Bank.
"This was earlier indicated by the sharp jump in India's Ease of Doing Business ranking. Such global ramifications will lower the cost of borrowing and boost investor confidence and conviction in the economy," further noted Kapoor.
India's economic reforms have been structural and are aimed at further formalizing the Indian economy. Recent measures such as the implementation of GST, direct benefit transfers are considered as steps that will improve government's fiscal discipline.
The rating upgrade will help the government reduce its cost of borrowings. Indian corporates with overseas borrowings will also benefit from the lower cost of capital.
Bankers have also noted that the reforms process is being seen as effective and is a recognition of the steps taken by the government. "The latest rating action by Moody's is obviously very welcome. I expect that this is a recognition of the way the economy has reacted to many of the steps taken by the Government. Clearly, it indicates that the reforms are seen as effective. I wouldn't be surprised if the others also follow this trend," said Parthasarathi Mukherjee, MD & CEO, Lakshmi Vilas Bank.
Indian stock markets also reacted positively to the development. The S&P BSE Sensex opened with a gap up and closed the day up 235 points to close at 33,342 points, up 0.71 per cent.
Moody's upgrade comes after 14 years and several initiatives taken by the government over the last three years. "The Introduction of Jan Dhan accounts, Aadhaar, mobile trinity reduces the wastage in public spend which was perennial in earlier implementation. Ease of doing business would also add to the tax collections," said Ashishkumar Chauhan, MD and CEO, BSE.
"Government's ability to service debts increases and also budget deficit comes down substantially. The overall Tax-GDP ratio is expected to increase substantially over next few years and hence the upgrade by Moody's which is expected to be followed by other rating agencies," Chauhan noted.
The move will also help banks and Indian corporates lower their cost of overseas borrowings. This is also expected to attract capital flows into the country, particularly long-term capital flows from pension funds as capital allocations to the country from overseas investors is expected to get a boost.
"This is also a huge positive for the Indian government and Indian corporates as it reduces borrowing costs for the government and will lead to lower credit risk premiums for corporates leading to the cheaper cost of capital," Kochar said.
Government’s ability to raise resources has improved substantially over the last few years due to fundamental reforms were undertaken including demonetization, GST, Jan Dhan accounts, mobile trinity, etc. It has increased number of direct taxpayers, which is revenue attractive. It has also increased the ability of state and central governments to collect taxes better using GST, reducing leakages. "Overall Tax-GDP ratio is expected to increase substantially over next few years and hence the upgrade by Moody’s which is expected to be followed by other rating agencies", said Ashishkumar Chauhan, MD & CEO, BSE.
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