Why does India have a POOR credit rating despite its global standing?Over the past decade, India has shown some remarkable economic growth—overcoming global challenges like the COVID pandemic and geopolitical conflicts like the Russia-Ukraine and Israel-Palestine wars!Now, when a nation experiences exceptional growth, one of the significant global benefits is → an enhanced credit rating.To understand it better, let’s begin with— 👉What is a credit rating? — A credit rating is an assessment of a country's ability to pay back its debts.It's given by “credit rating agencies”, which are private companies that specialize in evaluating the creditworthiness of borrowers. These ratings are CRUCIAL because they influence the interest rates a country has to pay on its loans. Higher ratings = lower interest rates, and vice versa.Now… surprisingly, India, despite being the 5th largest economy globally and the fastest-growing country, maintains a relatively conservative debt-to-GDP ratio of 81%!YET, India finds itself rated LOWER than countries like Peru, the Philippines, and even Kazakhstan! This seemingly paradoxical situation results in India >> paying substantial extra interest, hampering foreign portfolio investment and causing financial losses.👉Is India being discriminated against by credit rating agencies? How does it impact the economy?India is facing discriminatory practices from credit rating agencies, attributing its lower rating to factors beyond economic growth––considerations like inflation, debt levels, and political stability contribute to this unfavorable assessment. India's challenges include:- high inflation and- substantial debt burden—impacting its creditworthiness.This lower rating results in India incurring ADDITIONAL interest costs annually and creates hurdles for Indian companies seeking foreign loans. In response, the Indian government is actively working to enhance its credit rating by managing its debt and controlling inflation.👉Why is India seeming to be unfairly treated when it comes to credit ratings?It's puzzling because all our key economic indicators are IN-LINE with global standards. Adding to the mystery, we've never defaulted on our loans.What's even more surprising is that, in the entire history of the world, no other fifth-largest economy has ever had such a poor credit rating. This has prompted our finance ministry to raise objections against these credit rating agencies.Some might say that it's due to government corruption, excessive debt, or even geopolitical bias against our leaders. But, these arguments fall short because India's credit rating has been on a downward spiral for the past 20 years!— spanning across different governments.→What steps do you believe should be taken to address this situation?#india #finance #economy
You can check the detailed video of 'India’s Poor Credit Rating and Its Impact' on ThinkSchool’s YouTube channel: https://youtu.be/ow5LxMPuRz0?si=aCwxJef9oDBIMMAi
Building HyreSnap & Integrating Talents | AI First HR Tech B2B SaaS | Product Growth
6mo
While it's understandable to question India's credit rating given its global stature, it's crucial to acknowledge the multifaceted nature of credit assessments. India's economic growth is indeed impressive, but credit ratings consider a spectrum of factors beyond GDP, such as inflation and debt levels. India's high inflation and substantial debt burden are genuine concerns that directly impact its creditworthiness.Moreover, credit rating agencies operate on standardized methodologies that prioritize financial stability and risk mitigation. India's lower rating may reflect these agencies' assessment of the country's economic vulnerabilities rather than any form of discrimination. Instead of attributing the situation to unfair treatment, it's more constructive to address the underlying issues.The government's efforts to manage debt and control inflation are steps in the right direction. Implementing further reforms to enhance governance, transparency, and fiscal discipline can contribute to improving India's credit rating over time.
Asst. Professor CSE(AI) at KIET | MTech CSE(IS) NITK'24 | Ex-Full stack dev @Newgen | Interested in AI/ML,DL,Data science top roles | Strong financial acumen | Head of Sarcasm dept
6mo
These credit rating agencies are utterly biased towards western nations, oligarchs and other groups of so called influential ppl.They were single handedly responsible for 2008 financial crisis when AAA rated companies (read Lehman Brothers) defaulted and caused worldwide housing crisis due to financial instability on all major western markets,had these agencies properly auctioned them from time to time the exposure of major corporations all over the world towards those defaulters wouldn't have been so severe.How can they even have the audacity to place world's fastest growing major economy in lower middle investment grade(B3,Baa3) when half of the developed world(A,AA,AAA rated countries)is under recession and facing severe strees as well in all sectors of their respective economies?
I echo the points made by Mr. Sanjeev Sanyal on this subject—In the short term, creating awareness and public debate around unfair specific indicators should be the way forward and organisations like Think School ® are steering it well. Longer term, India needs to create its own credit agencies and think-tanks that have the capability to judge the world and issue their own ratings and rankings as narrative building is fundamental in the pursuit of global influence
Imo, it is the abrupt increment in a short time span.ET: “From 1947 till March 31, 2014, the total debt of the Indian government increased to Rs 55.87 lakh crore. In the last nine years, it grew to Rs 155.31 lakh crore, a jump of 2.77 times.”None of the other countries have witnessed such a spike and have such high debt to gdp ratios.
Machine Learning Engineer proficient in NLP and Computer Vision. | PyTorch
6mo
Credit rating agencies are the evil workshops that propelled the world into the "Housing Crisis of 08".Rating "C" bonds as "AAA". There's no one independent agency in the world that can't be bought, everyone has their own interests and there needs to be awareness away from the agencies towards pure facts and numbers.
Ex-Bain | CFA Level II Cleared | Business Valuation | Equity research | M&A Research | CFP
6mo
India’s Fiscal Deficit has increased significantly which could be a reason for its low credit rating.
IMT Ghaziabad PGDM'25 | Head of PR and Sponsorship - MarkUp | VIT'19
6mo
Ganeshprasad S, you're right on point with your analysis. It's puzzling that India's credit rating doesn't match its strong economy and potential for growth. Maybe if rating agencies were clearer about how they assess countries and considered India's steady growth and reforms more, it could fix this problem. People investing from other countries should look at India's overall progress, not just the usual measures.
Assistant General Manager(Retired) at PUNJAB & SIND BANK
6mo
It’s for the Government, RBI and Credit Rating companies to look into points which are defined in each report and take remedial action/ correction to impress upon their justifications authoritatively. If Government feels bias in reporting, may escalate the matter to world body.
To view or add a comment, sign in
More Relevant Posts
-
MBA - SIOM, Nashik '26 (SNAP '23 - 96%ile) || MEE - TIET '23 || Demand Planning & Logistics || Consulting & FMCG
Cracking India's Credit Conundrum: Bridging the Gap Between Growth and RatingsOver the past decade, India has been the epitome of economic resilience and growth, defying global challenges like the COVID-19 pandemic, geopolitical tensions, and regional conflicts. Despite its remarkable economic performance, India finds itself in a perplexing situation: a poor credit rating, much lower than expected for the world's fifth-largest economy and fastest-growing major economy.India's stellar economic growth should logically translate into a better credit rating, enabling it to borrow funds at lower interest rates and fuel further development. However, the reality is starkly different. Multiple credit ratings' recently downgraded India's sovereign credit rating to the lowest investment grade with a negative outlook, citing concerns about its economic trajectory.India has never defaulted on its loans, a testament to its fiscal responsibility and financial stability.Yet, India's credit rating lags behind countries like Peru, the Philippines, and Kazakhstan, despite its superior economic fundamentals and growth trajectory. This disparity raises critical questions about the methodology and fairness of credit rating agencies in evaluating sovereign creditworthiness.The repercussions of India's low credit rating are far-reaching. It underscores the imperative for reform and recalibration in how sovereign creditworthiness is assessed. 1. India is rated based on perceptions rather than data. Credit rating agencies like Moody's and S&P use a combination of quantitative and qualitative factors to assess a country's creditworthiness. However, the video argues that the qualitative factors are based on subjective perceptions, which can be biased against India. For example, India is penalized for having a large public sector banking system, even though this system is essential for providing financial services to the poor.2. The credit rating agencies have a conflict of interest. The video argues that credit rating agencies benefit from downgrading countries, as this encourages countries to borrow more money to maintain their credit rating. This, in turn, generates more fees for the credit rating agencies.3. The credit rating agencies are not transparent. The credit rating agencies do not disclose their methodology for selecting experts or for assigning weights to different factors. This lack of transparency makes it difficult for countries to understand why they are being rated poorly and how they can improve their rating.Moving fwd Government of India must take steadfast action to curb such anomalies - we can not afford such hurdles moving forward especially when we are treading the most important zone of growth and long-due recognition in terms of solid investments coming our way.#investments #India #growth
To view or add a comment, sign in
-
-
A Closer Look at India’s Credit Rating: An Unjustified Bias?India, the world’s fifth-largest economy, has been assigned a credit rating of BBB- by S&P Global and Fitch Ratings and Baa3 by Moody's Corporation. These ratings are the lowest investment grade, just a notch above “speculative” or “junk” status. This is despite India’s robust economic fundamentals and a history of zero sovereign default.Let’s see what the numbers say about this. As of January 2021, India’s foreign exchange reserves stood at US$ 584.24 billion. This is greater than India’s total external debt (including that of the private sector) of US$ 556.2 billion as of September 2020. In corporate finance language, India resembles a firm with negative debt, whose probability of default is zero by definition.Yet, the credit rating does not reflect these strong fundamentals. This perceived bias has real-world implications. A lower credit rating means higher borrowing costs. For instance, a one-notch rating upgrade can reduce the government’s annual borrowing cost by 0.6% of GDP.Moreover, this bias can exacerbate economic crises in developing countries. Foreign investors often retreat to “safe” investments in highly-rated economies during economic uncertainty. This can lead to a sudden outflow of capital from developing economies, worsening their economic situation.A recent paper by the economic division of India’s finance ministry has highlighted the need for reform in the credit rating process. The paper focuses on global credit rating agencies like Moody’s, Fitch, and Standard & Poor’s.Here are the key points from the paper:Opaqueness and Disadvantage: The rating methodologies employed by these agencies were criticized for their lack of transparency. Developing countries, including India, face adverse consequences due to this ambiguousness. For instance:Foreign Ownership Weight: Fitch’s methodology assigns greater weight to foreign ownership of banks, ignoring the developmental role played by state-run entities.Lack of Transparency in Expert Selection: The experts consulted by these agencies are chosen in a non-transparent manner, adding another layer of opaqueness to an already complex methodology.Clarity on Weight Assignment: The paper argues that there is a lack of clarity regarding the weights assigned to each parameter.Default Risk and Funding Costs: Reforming the sovereign rating process is crucial to reflect the default risk of developing economies accurately. Transparent processes would save these countries billions in funding costs.Developing Country’s Concerns: Developing nations often bear the brunt of credit rating downgrades despite experiencing milder economic contractions than their advanced economy counterparts.In summary, the paper emphasizes the urgency for adequate reforms in the credit rating system, ensuring that ratings truly reflect a developing economy’s willingness to pay back. #finance #rating #credit #gdp
To view or add a comment, sign in
-
-
💱ixCFO - CFO Services | ✔250+ Mandates | 🤝25K+ Connects |↗️ Growth Influencer | 📲 Digital savvy | 🏕 Social Impact - Angel-Advisory-Mentoring | 🛎 Independent Director | 💒Holistic Living - योग: कर्मसु कौशलम् 🙏
This has to be an area of concern : Interest payment is about 18 to 24% of total government expenditure. #Leveraging #debt for #country #developmentfinance is something #governmentofindia need to manage better. Chart in comment section
To view or add a comment, sign in
-
Fitch has retained India’s sovereign credit rating just above junk-grade 📛📛And while Modi Govt is angry about that, do its arguments have any merit?Here’s all you should know 👇..We are the 5th largest & the fastest growing large economy.Thus, the Govt always argues for a better rating from the likes of Moody's Corporation, Fitch Ratings & S&P Global, as a higher rating would mean a lower cost of borrowing.But, how do these agencies attribute credit ratings at all?..First, let’s get the basics right.🔆 Ratings say nothing about India’s own creditworthiness. Rather, they say how creditworthy is India relative to others🔆 Thus, for a rating upgrade, India has to not just improve on metrics of importance, but be better than at least one nation that enjoys a better ratingEg- Indonesia which unlike us is the No.16 economy that has traditionally grown at about half our rate, but has a better rating...So, what metrics are we talking about?There are many. The common & most important metrics? There are 4!..1️⃣ GDP Size🔆 Indicates the scale of investment opportunity🔆 And as the 5th largest economy, India is good here..2️⃣ Total Debt to GDP🔆 More debt means more obligations & associated risk, especially when interest rates are going up (like right now)🔆 And India’s debt to GDP has been very high at 84%. Pre-Covid too, this stood at 75%🔆 Perspective: Indonesia’s debt to GDP was just 40%. Even the median among nations with that rating is 55%We have never even been there!..3️⃣ Debt Affordability🔆 How much of a nation's revenue expenditure is interest payments? If it’s falling, ideally one can afford more debt🔆 But, instead of falling, interest payments today account for 24% of Indian Govt’s total revenue expenditure- Highest since 2004, and has NEVER been lower than 18% anyway🔆 Perspective: Indonesia’s interest-to-revenue expenditure ratio of just 13%. And, median among nations with that rating is mere 5%!..4️⃣ Per Capita Income:🔆 If finances are weak, can a Govt raise more money from people via taxes or other means to avoid a default?🔆 India has a very low per capita income of $2.4k per annum. Indonesia’s is $4.8k..Naturally, India offers better return potential than Indonesia. But, nos. show Indonesia is a safer sovereign investment bet:🔆 It has lower debt to GDP, spends less on interest payments, and hence has a relatively lower chance of a default🔆 Yet if it does end up in a stage of default, its $4.8k per capita income gives room for the Indonesian Govt to raise money from the populationHope this explains why India’s sovereign credit rating is so low...Join my 17k+ member Biz News+ WhatsApp community: https://lnkd.in/gDVXRNnDBest,JayantTags: #NirmalaSitharaman #ModiGovernment #Modi #UnionBudget #Budget #IndianEconomy #Fitch | NirmalaNote: I’ve highly simplified this for easy understanding because intent was to study where we lack. Hope this was helpful.
To view or add a comment, sign in
-
-
A confident India has taken on Moody's Corporation, S&P Global, Fitch Ratings “opaquenss”**A change of narratives begins when India weighs in on existing ones. Views?“Over-reliance on non-transparent qualitative factors (perceptions, value judgements, views of a limited number of experts, & surveys with loose methodologies) in sovereign rating, results in unacceptable outcomes. Makes rating of developing countries almost invariant wrt even sizeable movements in relevant macro fundas. Base rating, estimated through quantitative scoring of macro-fundamentals, is overridden by qualitative considerations. Loose qualitative info is fed into the quantitative overlay based purely on the agency’s subjective assessment of the country’s willingness & ability to pay gets loaded against developing countries. The composite result of this is exemplified by India's recent rating historyThe rating of India remained static at BBB- during the last 15 years, despite it climbing the ladders from the 12th largest economy in the world in 2008 to the 5th largest in 2023, with the second-highest growth rate recorded during the period among all the comparator economies. Thereby, any improvement in macro-economic parameters may virtually mean nothing for a credit rating if qualitative parameters are judged to be in need of improvement. This has serious implications for developing sovereigns' access to capital markets & ability to borrow at affordable ratesIs dependence on less-than-optimal qualitative information unavoidable? The ans. is a clear NO. On a zero base, there can’t be any better-revealed preference for willingness & determination to pay back a country's debt obligations than its repayment history itself. Thus, a nation that hasn’t defaulted throughout its external debt history & through the vicissitudes of its socio-economic development should be taken as fool-proof in its 'willingness to pay' back. This, if made the benchmark, can form the basis for the treatment of different combinations of debt defaults & reasons therein on the one hand & the assessment of the willingness to pay on the other. This involves painstakingly building up country-wise baseline information on debt history, instances of restructuring, defaults, & the circ*mstances leading to such events. However, this will do enormous good to the credibility of credit rating by enabling the CRAs to dispense with mechanical application of unconvincing qualitative information & judgements. Such information can be the last resort when all other options for applying authentic, verifiable information are precludedEven if governance indicators are to be relied upon, they must be based on clear, well-defined, measurable principles than subjective judgements by CRAs. Like all subjective qualifications, these also suffer from heuristic & cognitive biases (echo chambers, bandwagon effects, & difficult-to-change commitment & confirmation biases)”Well done 👍🏽🇮🇳 https://lnkd.in/dmgAc_KP
To view or add a comment, sign in
-
-
Building Global Vistar | Founder | Empowering world to leverage technology to it's full potential.
🌐 Unlocking India's Economic Potential: Bridging the Private Credit Gap 📈1. 📉 Private Sector Credit Gap: India lags behind with domestic credit to the private sector at 55% of GDP in 2020, significantly below the world average (148%) and its Asian peers - China (182%), South Korea (165%), and Vietnam (148%). This signals an opportunity to better utilize bank credit and the corporate bond market.2. 💳 Bank Credit Evolution: The Indian economy witnessed a bank credit boom from 2008 to 2014, but subsequent years saw a slowdown due to weak industrial sector growth and high NPAs. The NPAs have significantly decreased (5% as of Sep 2022), creating a favorable environment for renewed credit growth.3. 🌐 Digital Transformation: Digital infrastructure, including digital identity and robust payment systems, has enhanced financial inclusion. This technological leap enables better credit assessment, risk underwriting, and recovery mechanisms, reducing friction in credit distribution.4. 🏭 MSME Credit Boost: There's a crucial need to bridge the demand-supply gap for MSME credit (estimated at $250-300b). Changes in MSME definitions in 2020 have supported increased credit flow from banks, addressing a long-standing issue in India's credit market.5. 🏗️ Infrastructure Financing: With the Government of India planning $1.4 trillion in infrastructure investments over five years, alternative financing options are vital. A more robust corporate bond market, especially with increased secondary market trading liquidity, is essential for funding long-gestation infrastructure projects.6. 🌐 Untapped Corporate Bond Market: India's corporate bond market, at 16% of GDP in 2021, is underutilized compared to peers like South Korea (87%) and China (36%). Developing a more comprehensive investment-grade bond market can unlock significant opportunities.7. 💰 Private Non-Bank Credit: This emerging sector offers flexible capital solutions to mid-market firms. With the foundation laid by the National Company Law Tribunals and the Insolvency and Bankruptcy Code, 2016, private non-bank credit presents lucrative opportunities for non-traditional players.In summary, by addressing credit gaps, embracing digital transformation, and enhancing financial instruments, India can propel its economic growth. The potential for growth in private debt is evident, and strategic measures can position India as a frontrunner in the global economic landscape. 🚀 #IndiaEconomicGrowth #FinanceRevolution #economicopportunities Source: Ernst & Young
To view or add a comment, sign in
-
Founder - Trusol Advisors / Trusol EduTech | Corporate Finance, Capital Markets | Risk Management | Member Finance Area Advisory Board - GIM I Member - Advisory Board - ProFinTech Technologies
INDIA’S CREDIT RATING OUTLOOK CHANGED FROM ‘STABLE’ TO ‘POSITIVE’India’s sovereign credit rating was upgraded by S&P from a speculative grade to BBB- with a stable outlook in January 2007. While this upgrade was done by Moody’s in January 2004, the same was effected by Fitch in August 2006. S&P was the last to be off the block in changing credit rating of India at that time.While the outlook on this rating has undergone revision from stable to negative few times over the past 2 decades, all agencies had the stable outlook on India for last few years. However, this time S&P has been first off the block to revise the rating outlook to positive. It is for the first time, the outlook has been changed to positive while the rating has been BBB- (the lowest investment grade rating for last 14 years).This is great news for us. With India being well on track to become the third largest economy after the USA and CHINA over next few years, this is shot in the arm which is very well deserved. In my opinion, the agencies had been over cautious in their approach towards India, the fifth largest economy in the world with very stable fiscal parameters and low proportion of foreign currency obligations compared to the foreign exchange reserves we have. This should be followed by a rating upgrade soon and probably a movement to A category in a few years from now. Rating upgrade shall improve the cost of borrowing and the liquidity of our sovereign paper along with further enhanced stature and profile globally.While this is good news, but rating agencies need to warm up to reconcile the strong credit case for upgrading the sovereign credit rating of India to rating category where it belongs.Go India !!(Views are personal)
To view or add a comment, sign in
-
-
MOODY’S MAINTAINS STABLE OUTLOOK, AFFIRMS ‘BAA3’ RATING FOR INDIA WITH GROWTH FORECAST ·Global rating agency Moody’s on Friday maintained a stable ‘outlook’ and affirmed long-term and short-term ratings at ‘Baa3’ and ‘P-3’ respectively for India. ·It has estimated growth rate of 8 per cent for Fiscal Year 2023-24 and 6 per cent plus for current and next fiscal (2024-25 and 2025-26) years. ·This is the last investment-grade rating, and the stable outlook means downward revision in the rating is unlikely in the near term. ·However, it has cautioned that that an “escalation of political tensions or further weakening of checks and balances” that would undermine India’s long-term growth potential would likely put downward pressure on the rating. ·After completion of periodic review, the agency said that the ‘stable’ outlook incorporates the likelihood that India‘s fiscal metrics will continue to gradually improve amid robust growth prospects compared with peers. ·Upside risks to inflation and correspondingly higher interest rates could challenge efforts to rein in spending and exacerbate already weak debt affordability, it added. ·“The credit profile of India balances its large and diversified economy with high growth potential, a relatively sound external position, and a stable domestic financing base for government debt against high general government debt, weak debt affordability and low per capita income,” it said. ·This review report has been published at a time when India is pushing hard for rating upgrade. Government officials have maintained that India has neither defaulted not shown any sign of stress in repaying debt. ·Also, it has managed to keep fiscal deficit in control. However, it appears that rating agency would like to wait for some more time before making any change in sovereign rating which is used by investors for making any investment decision. ·Meanwhile, the agency said the country has benefited from traction on infrastructure development, digitalization and the rehabilitation of the financial system. It highlighted that a stronger and more stable economy has emerged from the pandemic. ·“We do not expect a material reduction in debt amid gradual fiscal consolidation over the next year. Debt affordability will also be challenged by still high global and domestic interest rates,” it said. ·Regarding growth projection, it said 8 per cent in FY24 is estimated on account of growth during the first three quarters. This is higher than various estimates. Even the government’s own projection is 7.6 per cent. ·With contributions from gross fixed capital formation remaining robust amid the authorities’ ongoing emphasis on infrastructure development, the expectation for the current and next fiscal year is well above 6 per cent, but there are some concerns, too. News source : The Hindu BusnesslineImage source: Economic Times
To view or add a comment, sign in
-
-
The Indian Government and Press take aim at the credit rating agencies, as the IMF warns that India's rising debt pile could cause serious problems.For the IMF's warning see: https://lnkd.in/eaj5_2usFor press reports criticising credit rating agencies see: https://lnkd.in/e8tHb77d. See also: https://lnkd.in/ev-D62xaFor further reports citing the Government's economic advisors, see: https://lnkd.in/etwvzipYThe Credit Rating Research Initiative #creditratings #India #IMF #economics #debt
IMF sounds alarm on India's rising debt, warns of exceeding 100pc of GDP
wionews.com
To view or add a comment, sign in
-
Did you know that India's sovereign credit rating, assigned by US-based agencies Fitch Ratings, Moody's Corporation, and S&P Global, stands at BBB-/Baa3—the lowest investment grade? Despite being the world's fifth-largest economy, India faces this rating, impacting its ability to access international capital markets. The methodology used by credit rating agencies (CRAs) has long been a subject of concern. The Securities and Exchange Board of India emphasizes that ratings are not recommendations but assessments of default probability.A crucial aspect is the opaque and non-transparent nature of CRAs, impacting developing economies. The Chief Economic Adviser's report highlights this, igniting a debate on discriminatory practices. Sovereign ratings, reliant on perception-based indicators, often fail to reflect the true economic fundamentals. The calls for reform underscore the need for an independent, transparent, and data-driven alternative, writes Najib Shah.Read more: https://bit.ly/3SjQTeX #CreditRating #CRAs #SovereignRatings #SEBI #PolicyMatters
Sovereign Credit Ratings Are Often Annoying; A Credible Indian Agency Can Change
thesecretariat.in
To view or add a comment, sign in
