Sovereign Credit Rating

Sovereign Credit Rating

Part of: Prelims and GS III – Economy

Context Rating agency Moody’s Investors Service has upgraded India’s sovereign rating outlook to ‘stable’ from ‘negative’, citing an decrease of risks from COVID-19.

• It retained India’s rating at Baa3, reflecting the lowest investment grade rating.
  • Moody’s considers a Baa3 or higher rating to be of investment grade, and a rating of Ba1 and below is speculative.
• It expects 2021-22 to record 9.3% growth in GDP, followed by 7.9% next year.
• The growth projections take into account structural challenges, including weak infrastructure, rigidities in labour, land and product markets that continue to constrain private investment and contribute to post-pandemic economic scarring.

Sovereign Credit Rating:

• 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. Another common motivation for countries to obtain a sovereign credit rating is to attract foreign direct investment (FDI).
• The Economic Survey 2020-21 has called for sovereign credit ratings methodology to be made more transparent, less subjective and better attuned to reflect an economy’s fundamentals.
• In India, there are six credit rating agencies registered under Securities and Exchange Board of India (SEBI) namely, CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.

India’s present scenario

• India has a higher debt burden and weaker debt affordability.
• However, India’s narrower current account deficits and historically high foreign exchange reserves have reduced the country’s vulnerabilities to external shocks.