Election win eases pressure on India ratings: Moody's

Pressure on India's sovereign rating could ease after the Congress-led coalition's big general election victory reduced policy uncertainty, a top official at credit rating agency Moody's said on Monday. However, Aninda Mitra, a senior analyst with Moody's Sovereign Risk Unit, said there are no immediate plans to change India's investment-grade Baa3 foreign currency rating and Ba2 domestic currency rating.
"In the short term this is almost a game changing event as far as India's political economy is concerned," he told Reuters in a telephone interview. "It provides enormous political scope to implement policy, to implement reforms." India's ratings have been constrained by a lack of consensus in government to take harsh economic decisions as a series of unwieldy coalitions came to power, hobbling policy.
But Prime Minister Manmohan Singh's alliance has defied predictions of a tight election and was only about 11 seats short of an majority from the 543 seats at stake, according to election commission data, though the final count see tiny changes.
Moody's has said in the past that India's ability to pass fiscal reforms has been impeded by the country's fractious coalition politics and the election victory could ease some of those concerns. "It would offset some of the ratings pressures on account of fiscal reasons and the government's heretofore inability to rein in its fiscal deficit," Mitra said.
Moody's has warned that India's rating could be lowered if it fails to progress on fiscal consolidation or if there was a sustained reversal of foreign capital inflows. It could also be hurt by a sharp rise in subsidies which puts significant pressure on the fiscal position, it said. Mitra said the election outcome is likely to help in attracting incrementally higher foreign investment in an otherwise still rather bleak global environment.
The electoral verdict this time means Congress will call the shots in coalition building rather than being dependent on the goodwill of regional parties. "We ourselves have said in the past that socio-political consensus on economic reforms continues to be elusive. Perhaps it is not as elusive as it had seemed," Mitra said. India's local currency rating is two notches below its foreign rating because of a strong external fiscal position, large overhang of government debt and fractious coalition politics and this could change over time.