So why then is its sovereign credit rating so low? And is there a credible case for India’s rating to be upgraded? In this week’s episode of TOI Business Bytes, Madan Sabnavis the Chief Economist at Bank of Baroda explains the importance of a good credit rating and what parameters rating agencies typically look at to decide the investment grade.
Why India’s Credit Rating Should Be Upgraded | Fastest Growing Economy But Lowest Investment Grade
Sabnavis tells TOI, “A credit rating is a rating which is given to a particular country, which tells you whether there is any possibility of a default. If a particular country is able to honor all its debt commitments, then it would ideally be in a AAA-rated stage, and as this ability to service debt keeps coming down, it could be moving downwards, right up to BBB which is considered to be the lowest level of investment grade.”
Watch the video above to know why Madan Sabnavis thinks that there is a strong case for India’s credit rating to be upgraded and why emerging markets cannot be measured with the same yardstick as the developed world. He also lays emphasis on the fact that India is an attractive destination for foreign investors and how 100% of the debt is denominated in rupees.
India’s credit rating currently stands at BBB- for S&P and Fitch and Baa3 for Moody’s. Any grade below this is “speculative” and the credit risk rises as you move down to the “D” rating which indicates default. Madan Sabnavis is of the view that India deserves not just a basic upgrade but one to a level of at least A. “I think that India definitely does deserve an upgrade and upgrade also of a significant level, not just from BBB- to say BBB, it’s more in the level of round A at a minimum,” he says.
Sabnavis also talks about how India has come a long way from the fear of being accorded the “junk” status and how despite a high fiscal deficit, a robust reforms situation and the credible handling of the global pandemic situation in terms of liquidity management all warrant a thumbs up from rating agencies in the form of an upgrade.