UPSC Articles
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.
