Moody’s upgrade will lift the Modi government, but problems remain

Upgrade in sovereign ratings to Baa2 from Baa3 by Moody’s is a shot in the arm for the Narendra Modi government that has been at the receiving end of serious flak from several quarters for the recent economic slowdown. Given that the upgrade has come after nearly 14 years, it is a testimony to the confidence reposed by foreign and domestic investors community alike in the Indian economy. After the upgrade, India has joined the select club of Baa2-rated economies like Italy, Philippines, Spain and Oman. On both the key norms, gross debt to GDP and gross national savings as percentage of GDP, India has done extremely well. For instance, the debt to GDP ratio in India was 68.3 per cent as against 133 per cent for Italy and 98.3 per cent for Spain. While this could be vital for a ratings upgrade, there’s no reason why India cannot bring it below 50 per cent by 2019. Similarly, domestic national savings were at a healthy 28.6 per cent vis-à-vis 19.6 per cent for Italy and 22.5 per cent in Spain. The arrest in domestic savings decline and foreign investors exposure being nominal at four per cent in Indian debt paper, could have played a major role in the ratings upgrade.

For the Modi government, the upgrade has come in close succession to the World Bank moving India up 30 places in ease of doing business, triggering huge conspiracy theories peddled by Congress and their Left-leaning intellectuals. Pew Research Survey showing 86 per cent approval rating for Narendra Modi as undisputed leader has only added zest to the ruling coalition that takes its electoral contests too seriously. The sharp criticism from former prime minister Manmohan Singh scripted by the Congress high command notwithstanding, Moody’s, World Bank and Pew vote of confidence would work wonders for BJP especially ahead of key Gujarat assembly polls. Already, conspiracy theorists began a social media campaign on Friday to belittle the achievements of the Modi government on GST rollout and demonetising high value currencies, apart from reforms like recapitalising the banks and the insolvency blue print.

However, the ruling BJP cannot wish away the concerns on rampant job losses, serious disruption in informal economic sectors and buildup in inflationary pressures, especially on daily consumables like vegetables and grains. Unless bread and butter issues for common man are addressed, these ratings may not mean much for the vast majority of people struggling to live decently. The intent and content of economic reforms may have been right and implementation may also have been sequenced well to keep economic disruption at minimal levels, but unless balm is applied by the powers that be, the ratings could just pep up sentiment for businesses, borrowers and foreign investors.