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):
