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Ratings agency Moody’s Investors Service downgrades India’s sovereign ratings

  • IASbaba
  • June 11, 2020
  • 0
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Ratings agency Moody’s Investors Service downgrades India’s sovereign ratings

Part of: GS-Prelims and GS-III – Economy; Investment

In News:

  • Recently, ratings agency Moody’s Investors Service downgraded India’s sovereign ratings from Baa2 to Baa3.

Key takeaways 

  • Reasons for the downgrade:
    • Slow reform momentum
    • Constrained policy effectiveness
    • Slower growth compared to India’s potential 
  • The downgrade is not driven by the impact of the pandemic.
  • Baa3 is the lowest investment grade in Moody’s rating ladder.
  • Moody’s had upgraded the country’s rating to Baa2 in November 2017.
  • According to Moody, India’s real GDP growth rate will contract by 4% in 2020-21 due to the shock from the coronavirus pandemic and related lockdown measures.
  • It expects the economy to grow 8.7% next financial year and closer to 6% in the subsequent year.

Important value additions 

Credit Rating

  • It is a quantified assessment of the creditworthiness of a borrower. 
  • It can be assigned to any entity that seeks to borrow money—an individual, corporation, state or provincial authority, or sovereign government.
  • A sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity.
  • It can give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.
  • Obtaining good sovereign credit rating is usually essential for developing countries in order to access funding in international bond markets.
  • The Big Three Credit Rating Agencies:
    • Fitch Ratings
    • Moody’s Investors Service and
    • Standard & Poor’s (S&P) 
  • In India, there are six credit rating agencies registered under Securities and Exchange Board of India (SEBI):
    • CRISIL
    • ICRA
    • CARE
    • SMERA
    • Fitch India 
    • Brickwork Ratings.

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