The agency has announced that it is upgrading India's rating from Baa3 to Baa2, and changing the rating outlook from positive to stable due to balanced risks to India's credit profile. This is Moody's first upgrade of India since January 2004, raising the rating to the second-lowest investment grade, surpassing Standard & Poor's and Fitch. The decision by Moody's is seen as a recognition of Prime Minister Narendra Modi's government and its reforms. This comes shortly after the World Bank improved India's ease of doing business rankings. Indian markets responded positively to the news, with stocks, bonds, and the rupee all rallying. According to Lakshmi Iyer, head of fixed income at Kotak Mutual Fund, it feels like Christmas has come early for India. The upgrade in ratings is beneficial for bonds that were previously facing negative trends. This change is seen as a positive development that will result in lower yields across different time periods. India had strongly advocated for an upgrade from Moody's last year, but was unsuccessful due to concerns about the country's debt levels and fragile banking sector. Despite criticism of Moody's rating methodology, the agency did not change its decision. Finance Minister Arun Jaitley described the upgrade as a delayed acknowledgment of the government's efforts to improve India's economy. The upgrade is also seen as a success for Prime Minister Modi, especially following a recent survey showing high approval ratings for him among the Indian population. Some economists believe that the other major rating agencies, Fitch and S&P, are unlikely to upgrade India's credit rating soon. Radhika Rao from DBS pointed out that slow growth, a struggling rural sector, and low investment, along with increased oil prices, are posing risks to the economy. She mentioned that Fitch and S&P have expressed concerns about the weak finances of both state and central governments. Finance Minister Jaitley stated that the government will continue with fiscal consolidation, aiming for a fiscal deficit of 3.2 percent for the current fiscal year and 3 percent for the next. He stated that they will continue to adhere to fiscal discipline and expressed confidence that current policies will help India move towards a stronger financial position smoothly. Moody's also upgraded the ratings of several Indian entities, including State Bank of India, HDFC Bank, and state-run energy firms NTPC, NHPC, and GAIL India Limited, as well as the National Highways Authority of India, which could potentially reduce their borrowing costs. Following this, India's benchmark 10-year bond yield decreased to 6.94 percent before closing at 7.05 percent, the rupee ended at 65.02 per dollar compared to 65.3250 at the previous day's close, and the main Mumbai stock index ended 0.67 percent higher. However, debt traders warned that due to heavy bond supply and a hawkish inflation outlook, the market surge might not last beyond a few days. A bond trader at a private bank questioned who would be brave enough to continue buying in the current market. Moody's stated that the implementation of the goods and services tax (GST) in India would improve productivity by eliminating barriers to inter-state trade. Marie Diron from Moody's mentioned that the upgrade considered the potential impact of the GST reform on growth, as well as the government's commitment to fiscal consolidation despite some short-term challenges. Some market participants raised concerns about the timing of the upgrade, with one foreign bank calling it risky due to worries about the government's fiscal discipline. Moody's predicted a slight decrease in India's real GDP growth for the fiscal year ending in March 2018, and also increased the country's local currency debt ratings. Moody's stated that although several important reforms are still in their initial phases, the ones already put in place are expected to help the government achieve its goal of enhancing the business environment, increasing productivity, and encouraging investment. Moody's also mentioned that in the long run, India's growth potential is much greater compared to most other Baa-rated countries.