Home ECONOMY India’s ratings linked to reforms, not latest GDP data: Moody’s

India’s ratings linked to reforms, not latest GDP data: Moody’s

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Mumbai, Feb 25:

US firm Moody’s Investors Service said Wednesday that its assessment of India’s credit ratings will be determined by the extent of its fiscal and structural reforms, and not by recent data “based on methodological and base year updates” showing an upward trend in the country’s GDP growth rate.

Photo Courtesy: moneyandmarkets.com
Photo Courtesy: moneyandmarkets.com

“The upward revisions of India’s GDP growth based on methodological and base year updates — highlight the strength of the economy, but do not impact Moody’s overall assessment of the sovereign’s (India) credit profile,” the agency said.

“Rather, fiscal and structural reform policies will determine the extent to which accelerating growth will buttress the sovereign credit profile,” it added.

With the 2015-16 budget coming this weekend widely expected to boost capital spending and offer tax breaks to the manufacturing sector, Finance Minister Arun Jaitley has a problem in controlling the fiscal deficit because the tax revenue earned by the central government as a percentage of the GDP has been falling over the years.

Tax revenue in 2007-2008 stood at 11.9 percent of the GDP. By 2013-2014, it had fallen to 10 percent of GDP and in 2014-2015 is expected to fall further to 9.6 percent, signifying the government’s declining ability to service its accumulated debt.

Announcing it as the Narendra Modi-led government’s most significant achievement till date, President Pranab Mukherjee on Monday said the latest estimates of India’s gross domestic product (GDP) growth makes it the fastest growing large economy in the world.

“According to the latest estimates, our GDP is growing at 7.4 per cent, which makes India the fastest growing large economy in the world,” Mukherjee told the joint sitting of parliament on the opening day of the budget session.

Earlier this month government statisticians came out with GDP data calculated with a new base year, which makes it harder for the finance minister to assess the size of the fiscal stimulus required to help boost the economy.

Shifting the base year from 2004-05 to 2011-12, the Central Statistical Office last week estimated GDP growth during 2014-15 at 7.4 percent as compared to 6.9 percent in 2013-14. It has also revised the growth rate for the first half of 2014-15 to 7.4 percent from the 5.5 percent it had earlier reported under the old method.

Commenting on the change in data procedures, Reserve Bank Governor Raghuram Rajan said last month: “We may be reaching the outskirts of the woods but we are not out of the woods yet. So I don’t think any data that suggests we are out of the woods at this point, we would put too much weight on it.”

Moody’s rates India at “Baa3”, the lowest investment grade rating, with a “stable” outlook, in line with the ratings of other agencies like Standard & Poor’s and Fitch Ratings. IANS