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Monday, March 01, 2021

Sovereign ratings: ‘More transparent’ process needed

Even as changes to India’s sovereign ratings have not had major impact on market performance, rupee value against dollar or on G-Sec yield, the Economic Survey 2020-21 said it can impact FPI inflow into equity and debt instruments.

By: ENS Economic Bureau | New Delhi |
January 30, 2021 1:22:51 am
Sovereign credit ratings, Economic Survey, transparent credit ratings, Indian economy, Economy news, Indian express newsWhile Moody’s has assigned a sovereign rating of Baa3, S&P has assigned a BBB(-) rating to India, both of which are the lowest investment grade rating awarded by the agencies.

Stating that India’s sovereign credit ratings do not capture the fundamentals of its economy, the Economic Survey 2020-21 called for a more transparent methodology for credit ratings making it less subjective. Even as changes to India’s sovereign ratings have not had major impact on market performance, rupee value against dollar or on G-Sec yield, the survey said it can impact FPI inflow into equity and debt instruments.

Explained

Bias issue raised consistently

The government has consistently raised the issue of bias at credit rating agencies in the recent past and independent analysts, too, have contended that agencies had not been fair to emerging markets.

While Moody’s has assigned a sovereign rating of Baa3, S&P has assigned a BBB(-) rating to India, both of which are the lowest investment grade rating awarded by the agencies. The survey pointed that India is a clear outlier on several parameters, with its rating significantly lower than mandated by the effect of the sovereign rating of the parameter.

“Despite ratings not reflecting fundamentals, they can however be pro-cyclical and can affect equity and debt FPI flows of developing countries, causing damage and worsening crisis. It is therefore imperative that sovereign credit rating methodology be made more transparent, less subjective and better attuned to reflect economies’ fundamentals,” said the Economic Survey.

“India’s willingness to pay is unquestionably demonstrated through its zero sovereign default history,” said Chief Economic Adviser Krishnamurthy Subramanian.

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