International credit rating agency Moody's has upgraded the rating of three key Indian debt instruments. Moody's upgrade follows a positive rating action by DBRS in June 2011 when it upped the rating on long-term foreign and local currency debt from negative to stable. Another agency, Fitch, in June, affirmed its credit rating issued last year.

Such upgrades will reinforce confidence among investors, senior Government officials said, adding that corporates will also be able to negotiate easier terms for borrowing internationally.

“The upgrade by Moody's should be seen in the context of what is happening in the present uncertain global economic environment,” a senior Finance Ministry official said. Since April this year, the agency has downgraded 15 sovereigns; Portugal, Ireland, Greece and Cyprus have been downgraded twice each.

The agency has upgraded the rating on long-term Government bonds denominated in domestic currency and long-term country ceiling on foreign currency bank deposits from ‘Ba1' to one notch higher at Baa3 (from speculative to investment grade). The last time Moody's upgraded any Indian long-term sovereign debt instrument from speculative to investment grade was in 2004.

The agency has also upgraded short-term Government bonds denominated in the domestic currency from NP to one notch higher at P-3 (from speculative to investment grade). The short-term rating has been upgraded for the first time since it was newly assigned in 1998.

Explaining its assessment, the agency said, “In terms of economic size, diversity, growth, as well as saving and investment rates, India is stronger than Baa3 and peers.” Further, it added that India's “official foreign exchange reserves are ample enough to finance the deficit as well as maturing external debt when external flows are volatile.”

However, the Government is not satisfied with such an upgrade. “India deserves at least two notches higher. But the important thing is that they have recognised the need to react positively,” a Finance Ministry official said. It will also make other agencies re-look their methodology, he added.

Currently, India's sovereign debt is rated by six agencies, namely, Standard and Poor's (S&P), Moody's Investor Services, Dominion Bond Rating Service (DBRS), Fitch Ratings, Japanese Credit Rating Agency (JCRA) and Rating and Investment Information (R&I).

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