Moody?s Investors Service recently upgraded India?s ratings to an investment grade, citing rising foreign investment into Asia?s third largest economy and ?vibrant? economic growth. Moody?s upgraded India?s country ceiling for foreign currency bonds as well as the government?s foreign currency issuer rating to Baa3 from Ba1. Moody?s said the principal driver behind the rating changes was the reduction in external payments vulnerability. ?India?s foreign exchange reserves have increased to over $100 billion, a $30 billion rise in the year since these ratings were last raised,? said a Moody?s statement issued here.

?This amount is more than twice the value of the country?s external obligations due over the next year and is also nearly large enough to cover a full year?s current account payments,? it added. The rating agency also cited India ?s resilient economic performance in recent years, saying the gross domestic product managed to post grow by 4.2 per cent in 2002-03 despite a drought-induced shock. ?Forecasts for the current year?s expansion have been adjusted upward to eight percent. Going forward, growth is expected to be somewhat lower than this year, partly due to government dis-savings,? it said.

?Still, growth will likely remain robust, the product of more than a decade of gradual structural reforms and market liberalisation.?

Moody?s said healthy earnings in the Indian equity and portfolio markets, in addition to enhanced confidence in local business prospects, were the main reasons for heightened investment and other capital inflows in the past year.

The agency said the restructuring of private and some public industry, which had benefited from the lowering of import tariffs and restrictions as well as foreign resource transfers, was being recognised by investors worldwide.

According to Moody?s, the recent ?moves toward a rapprochement between the Indian and Pakistani political leadership? also augurs well for the Indian economy.

?Although the peace process is at an early stage and depends uncomfortably upon the leaders? continuance in office,? it added.

?In the event that the negotiations can meaningfully reduce regional tensions, the potential exists for a reallocation of scarce resources from defence to social welfare programmes.?

Moody?s, however, pointed out that concrete progress on controlling India ?s fiscal deficit across all levels of government was ?still desirable? in order to stabilise the government?s domestic currency rating.

?Accordingly, the agency will watch for more ambitious implementation of public sector and labour market reforms following the upcoming national elections,? it said.

Source: Times of India