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18 Aug 2010
Explains the recent upgrade of the government's local currency bond rating
Singapore, August 18, 2010 -- Moody's Investors Service has today published a new annual sovereign credit
report on India. The report provides a detailed explanation of
the rationale for the Baa3 foreign currency and recently upgraded Ba1
local currency rating.
India's ratings are based on four key methodological factors:
1. Medium economic strength: derived from a large,
well-diversified economic structure within which rapid growth is
supported by ongoing economic liberalization, high household savings,
and a strong and competitive private sector. However, low
income levels -- along with inadequate social and physical
infrastructure, and rigidities in pricing mechanisms -- constrains
a better assessment of the country's economic strengths.
2. Medium institutional strength: this is supported by moderately
effective macroeconomic policies, a track record of incremental
institutional reforms, and gradual improvements in governance.
3. Low government financial strength: which reflects the
government's large debt and debt service burden, but,
whose risks are offset by a favorable debt composition and structure;
a semi captive financing pool; healthy external position; and
ongoing fiscal reforms.
4. Low susceptibility to event risk: reflects a constitutionally
based and well tested democratic framework which heightens the country's
shock absorption capacities; and it also reflects a a well managed
corporate and banking system where the lack of excessive external,
commercial or household leverage imparts stability.
"The positive outlook on the Ba1 local currency sovereign rating
encapsulates our expectation that reasonable policy management and a deepening
of reforms will contain medium-term inflationary pressures,
and reduce the risk of renewed fiscal slippage. It also reflects
the political scope and the policy commitment for implementing reforms
until the end of the current government's term in office in 2014,
against the risk of heightened structural fiscal pressures from a broadening
of social welfare programs," said Mr. Aninda Mitra,
a Moody's Vice President and its lead sovereign analyst for India.
"Currently, the Indian government's foreign currency bond
rating of Baa3 carries a stable outlook signifying evenly balanced risks
to the country's reasonably healthy external fundamentals and macroeconomic
prospects," he added.
What could eliminate the ratings gap:
Moody's ratings gap in favor of the Indian government's foreign currency
obligations signifies a potential likelihood that the government of India
could prioritize its external obligations over its domestic obligations.
The former are easily repayable and owed predominantly to official creditors;
and the latter are onerous and owed largely to a statutorily pliable domestic
However, even amidst a trying global and local environment,
Indian authorities have remained on the course of implementing incremental
institutional and regulatory reforms that are deepening and liberalizing
domestic capital markets. And, improving government finances
will also gradually ease the need for onshore controls, and risk
In this context, Moody's will consider unifying India's local and
foreign currency ratings at Baa3 should the track record of fiscal reforms
deepen, and if --currently higher than usual-
inflation pressures normalize. These developments would underpin
the government's structural reform program and improve its local currency
What Could Change the Rating -- Up:
A significant and credible improvement in the government's fiscal and
debt position; lowering and better management of inflation;
and, improvements in infrastructure, supported by larger foreign
direct investment inflows.
What Could Change the Rating -- Down:
Failure to progress on fiscal consolidation or a loss of inflation control
and a sustained worsening of the external balance and foreign currency
liquidity position. A sharp rise in subsidies which puts significant
pressure on the fiscal position.
Previous rating action and methodology:
Moody's last rating action on India was taken on July 26, at which
time it upgraded the local currency sovereign rating to Ba1, from
Ba2, and kept the outlook on positive.
The principal methodology used in rating the Republic of India is Moody's
Sovereign Bond Ratings Methodology, published in September 2008
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
The new report titled "Credit Analysis: India" can be
found at www.moodys.com
NOTE TO JOURNALISTS ONLY: For more information please contact New
York Press Information +1-212-553-0376;
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Detlef Scholz in Frankfurt +49-69-707-30-700;
Mardig Haladjian in Limassol +357-25-586-586;
Alex Sazhin in Moscow +7-495-228-60-60;
Petr Vins in Prague +4202 2422 2929; Tokyo Press Information
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Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo
+5511-3043-7300; Alberto Jones Tamayo in Mexico
City +5255-1253-5700; Daniel Rúas in Buenos
Aires +54 11-4816-2332 ext. 105; Leon Claassen
in Johannesburg +27-11-217-5470; Jehad
el-Nakla in Dubai +971 4 401 9536; or visit our web site
Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Aninda S. Mitra
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's Investors Service Singapore Pte. Ltd.
Moody's Issues Annual Report on India
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