Moody’s Investment Service raised India’s rating to investment grade in January 2004. Fitch ratings followed closely in 2006, while S & P was the last to increase it by one level. The change of outlook towards India from waste to stable to positive by some of the international rating agencies signifies the remarkable change seen by the Indian economy. What led to this great change?
Country rating is a multifaceted and extensive process involving economy, wealth, income distribution, level of infrastructure, finance and debt status. India is a trillion dollar economy today, and only the twelfth to achieve this. Though economists feel that the upgraded ratings were long overdue, it’s been possible due to major economic reforms and improving macro-economy. India gained its full-investment-grade status close to two decades after S & P had downgraded its Sovereign rating to waste status in 1991. That was a bad time in the Indian economy, with a near default on foreign currency debt and reserves down to about a million dollars. Currently, S & P credit analysts are optimistic about India, with prospects rising and GDP growth averaging close to 7.5% in the medium term.
The balance of payment crisis transformed India with economic liberalization in 1991. It opened markets, reduced government control on private sector participation thereby ending the license raj, boosted foreign trade and encouraged foreign direct investments. The various governments taking control at the center over a period of time didn’t change the general liberalization pattern, which generated and built confidence levels in the country. Total trade in goods and services was 17% of GDP in 1990, which is 45% currently. India’s merchandize exports have crossed US $ 50 billion in 2003. The GDP growth for the year ending March 2007 was 9.4%, the highest since 1988-89, when the growth was 10.5%. The bilateral trade in merchandize goods between India and the US increased from $ 5.6 billion in 1990 to $ 31.92 billion in 2006, showing a growth of 470%. The combined wealth of the twenty million Non-Resident Indians (NRI) is close to a trillion dollars – more than the country’s entire economy. Six Indian companies are listed in the Fortune Global 500 list in 2006.
The upgrade by the rating agencies gave the much-required boost to the confidence of foreign investors bringing in foreign direct investments. Where does the improved country rating take India? What does it entail? What more do we need to do to market our brand to rating agencies? Or is this as good as it gets? Do share your views with us!