Moody's rating upgrade comment irks government

The government has expressed its concern on Moody’s saying a rating upgrade would be possible in a couple of years even before the agency met finance ministry officials. Moody’s representatives met senior Finance Ministry officials, including Economic Affairs Secretary Shaktikanta Das, on Wednesday as part of their annual visit to India. At the beginning of the meeting itself, Das is said to

have told the representatives that he had serious concerns regarding the agency’s methodology. Moody’s senior vice-president for sovereign risk group Marie Diron had told Business Standard on Tuesday that a rating upgrade could happen in a couple of years depending on the progress on reforms. “The secretary (Das) expressed his concerns to Moody’s representatives that they have already announced that there would be no rating upgrade in two years, even before they met finance ministry officials,” said a senior government official. “It is like they have given a ruling before the arguments began. This completely renders useless the current exercise of Moody’s asking us questions and we replying.”

Das is said to have told the representative that the meeting was “completely irrelevant and superfluous” and expressed concerns about their statement. “How much of depth do you want our reforms to take? This is appearing like a bottomless pit. For seven years we were told that GST hasn’t happened. And now GST has happened, it has to be implemented on April 1, and everyone is working towards it,” the secretary is said to have sternly told the ratings agency’s representatives. “You said reforms should take roots? How deep should the roots take?” he is said to have asked them.

In the meeting, the finance ministry pitched for a rating upgrade citing reforms and the steps taken towards ease of doing business. Moody’s expressed concern over the state of bad loans in the banking sector.

In April last year, Moody's had changed India's rating outlook to positive from stable, citing reform momentum, and had said it could consider India for an upgrade in 12-18 months. India's sovereign rating by Moody's stands at Baa3, the lowest investment grade, a notch above junk status.

During the meeting, the ministry impressed upon the global rating agency about the government's resolve to contain the fiscal deficit at 3.5 per cent of gross domestic product in the current financial year. It highlighted the passage in Parliament last month of the long pending Goods and Services Tax (GST) Bill, billed as the biggest tax reform since Independence.

Armed with relaxation of thresholds for FDI and inflation targeting monetary policy, the finance ministry wants the US-based agency to upgrade the country's rating, lifting its credit profile. The government has in 3-4 months also secured Parliament's approval for the passage of the bankruptcy, Sarfaesi and DRT laws, besides GST.