The agency announced an upgrade in India's rating from Baa3 to Baa2, with a stable outlook, due to balanced risks in India's credit profile. This is the first upgrade by Moody's for India since January 2004, placing it just above "junk" status, higher than Standard & Poor's and Fitch. The decision by Moody's is seen as recognition of Prime Minister Narendra Modi's government and its reforms. This news, coupled with India's improved ranking in the World Bank's ease of doing business index, led to a positive reaction in Indian markets. Lakshmi Iyer, head of fixed income at Kotak Mutual Fund, described the news as a pleasant surprise. The decision to upgrade the ratings is seen as a positive development for bonds that were previously struggling. This change is expected to result in a decrease in yields across different time periods. Despite India's efforts to persuade Moody's to upgrade its rating last year, the agency was hesitant due to concerns about the country's debt and banking system. However, Finance Minister Arun Jaitley believes the upgrade is a recognition of the government's efforts to improve the economy. Additionally, Prime Minister Modi's colleagues view it as another success for him, especially after a recent survey showed high public approval ratings for him. Some economists expressed skepticism about the likelihood of other major rating agencies following Moody's lead in upgrading India's credit rating. Radhika Rao from DBS highlighted concerns about slow growth due to reforms, a struggling rural sector, and low investment, as well as the risks posed by increasing oil prices. She suggested that Fitch and S&P may not rush to upgrade India's rating, as they have expressed reservations about the financial stability of state and central governments. Finance Minister Jaitley stated that the government remains committed to fiscal consolidation, aiming for a fiscal deficit of 3.2 percent of GDP in the current year and 3 percent in the following year. He stated that they will continue to adhere to fiscal discipline, expressing confidence that current policies will help India move towards a stronger financial position. Moody's upgraded the ratings of several top Indian financial institutions and energy companies, as well as the National Highways Authority of India, which could result in lower borrowing costs for them. The Indian markets experienced a surge, with the 10-year bond yield dropping to 6.94 percent before closing at 7.05 percent, the rupee strengthening to 65.02 per dollar, and the main Mumbai stock index closing 0.67 percent higher. However, bond traders cautioned that due to high bond supply and a pessimistic inflation outlook, the market rally may not be sustained for long. A bond trader at a private bank questioned who would be brave enough to keep buying in the current market. Moody's stated that the introduction of the goods and services tax (GST) in India would increase productivity by eliminating barriers to trade between states. Marie Diron from Moody's said that the upgrade took into account the potential impact of the GST reform on growth. She also mentioned that Moody's considered a higher government deficit but believed in the government's commitment to fiscal consolidation. However, some market participants raised concerns about the timing of the upgrade, with one foreign bank describing it as risky due to worries about the government's fiscal discipline. Moody's predicted that India's real GDP growth would slow to 6.7 percent in the fiscal year ending in March 2018 from 7.1 percent the previous year. The agency also upgraded India's local currency senior unsecured debt rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. Moody's stated that although some important reforms are still in the early stages, it is confident that those already in place will help the government achieve its goal of enhancing the business environment, increasing productivity, and encouraging investment. Moody's also mentioned that India has a much greater growth potential in the long term compared to other sovereigns with a Baa rating.