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

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.