India's Sovereign Credit Ratings: A Closer Look

  Sep 18, 2023

Sovereign Credit Rating Agencies and India

They are organizations that assess the creditworthiness of countries, essentially evaluating their ability to repay debts. The "Big Three" agencies globally are S&P, Fitch, and Moody's, all based in the United States. These agencies use a combination of quantitative and qualitative assessments to determine a country's credit rating, considering factors such as economic performance, fiscal policies, external drivers, and structural elements of the economy.

How They Rate

The rating process involves a comprehensive analysis of the country's economic and political environment. They consider various factors including:
GDP growth rate
Fiscal deficits
Debt-to-GDP ratio
Interest payment to revenue ratio
Foreign exchange reserves
Banking system stability
Debt structure and affordability

Consequences of Ratings

The ratings given by these agencies have significant consequences:
Investment: A high rating can attract foreign investments, while a low rating can deter investors.
Borrowing Costs: Countries with higher ratings can borrow at lower interest rates, whereas those with lower ratings may face higher borrowing costs.
Economic Perception: The ratings influence the global perception of a country's economic stability and governance.

India's Ratings

Despite being one of the fastest-growing major economies, India has struggled to secure a high sovereign credit rating. The primary reasons cited by the agencies include:
High Debt-to-GDP Ratio: India's debt-to-GDP ratio is around 84%, significantly higher than the median for other countries with a similar rating.
Fiscal Deficits: Persistent high fiscal deficits have been a concern.
Debt Affordability: The current global and domestic environment of higher interest rates poses challenges to debt affordability.
Low Per Capita Income: India's relatively low per capita income, even on a PPP adjusted basis, is a limiting factor.

BRICS and the Quest for an Independent Rating Agency

In the past, India, along with other BRICS nations (Brazil, Russia, China, and South Africa), explored the possibility of setting up an independent rating agency to break free from the dominance of the "Big Three." However, this initiative did not materialize due to concerns over the potential credibility of such an agency.

Why India is Not Getting a Good Grade

Despite its economic growth and positive outlook from institutions like the IMF, India has not seen an upgrade in its rating. The agencies maintain that the ratings are a relative assessment of creditworthiness compared to peer countries, and India's public finances remain a key weakness. Moreover, India's argument that its debt is mostly domestically held and therefore poses a lower risk of external debt default has not convinced the agencies.

Way Forward

For India to improve its rating, it needs to address the concerns raised by the agencies, including reducing its fiscal deficit and debt-to-GDP ratio, and enhancing its economic strengths through sustained growth and development. It is a complex process, and improvements in ratings may take time, even if the country achieves significant economic milestones.


India's struggle with sovereign rating agencies is not isolated, as even countries like the US have faced downgrades. The ratings are a reflection of a multitude of factors, and not just the size of the economy. While India has voiced its discontent with the current rating system, working towards economic stability and growth remains its best bet to improve its standing in the future. It is a continuous process that involves balancing economic growth with fiscal responsibility


India's sovereign credit rating has been a topic of discussion for many years, especially given its economic trajectory and the potential it holds. Let's delve into the specifics of India's rating and the perspectives of different rating agencies:

India's Sovereign Credit Rating

As of the recent reviews by the "Big Three" rating agencies — S&P, Fitch, and Moody's — India retains a rating that is just above "junk" status. Here are the details:
S&P: India has a rating of 'BBB-', which is the lowest investment-grade rating. It is one notch above the "junk" status.
Fitch: Similar to S&P, Fitch has assigned a 'BBB-' rating to India, highlighting it as the lowest investment-grade with a perspective of being stable.
Moody's: Moody's rating for India stands at 'Baa3', which is equivalent to the 'BBB-' rating by S&P and Fitch. This rating is also the lowest rung of the investment grade, just a step above the speculative or "junk" grade.

Implications of the Current Rating

The current ratings imply that while India has a stable economy with strong growth prospects, it also harbors significant weaknesses, primarily related to its fiscal health. The ratings reflect concerns over:
High debt-to-GDP ratio, which is around 84%, considerably higher than the median of other countries in the 'BBB' category.
Persistent fiscal deficits that have led to an elevated level of public debt.
Challenges related to debt affordability, especially in a scenario of rising global interest rates.

The Road Ahead

To improve its sovereign credit rating, India needs to work on:
Reducing its fiscal deficit and bringing down the debt-to-GDP ratio.
Enhancing debt affordability in a changing interest rate environment.
Continuing to foster economic growth and improve per capita income over time.


Despite its robust economic growth and positive outlook, India's sovereign credit rating remains at the lowest investment grade. The ratings, while acknowledging India's economic strengths, also highlight significant weaknesses, particularly in terms of fiscal health and debt structure. Looking ahead, it is imperative for India to address these concerns to foster a more favorable rating environment, which, in turn, can facilitate better investment prospects and lower borrowing costs. It is a nuanced scenario where India needs to balance its growth aspirations with fiscal prudence to enhance its creditworthiness in the global arena.


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