What are India’s problems with most credit ratings agencies? | Explained

2026-07-07 · 3 min

UPSC CSE Context Why in News: Commerce Minister Piyush Goyal criticized global credit rating agencies for unfair methodologies towards India. Syllabus Connection: Indian Economy: issues relating to planning, mobilization of resources, growth, development and employment; International financial institutions. Exam Relevance: Relevant for questions on sovereign credit ratings, their impact on borrowing costs, and India's concerns about methodology bias. Core Issue India's sovereign ratings remain just above junk despite strong fundamentals, leading to criticism of rating agencies. Key Development: India's ratings upgraded in 2025 after decades, but still low; government questions qualitative metrics. Stakeholders: Government of India Moody's Fitch CareEdge Ratings Investors Static Knowledge High Value Background: Sovereign credit ratings assess a country's ability and willingness to repay debt, influencing borrowing costs. India has never defaulted on sovereign debt, yet its ratings have

## UPSC CSE Context **Why in News:** Commerce Minister Piyush Goyal criticized global credit rating agencies for unfair methodologies towards India. **Syllabus Connection:** Indian Economy: issues relating to planning, mobilization of resources, growth, development and employment; International financial institutions. **Exam Relevance:** Relevant for questions on sovereign credit ratings, their impact on borrowing costs, and India's concerns about methodology bias. ## Core Issue India's sovereign ratings remain just above junk despite strong fundamentals, leading to criticism of rating agencies. **Key Development:** India's ratings upgraded in 2025 after decades, but still low; government questions qualitative metrics. **Stakeholders:** - Government of India - Moody's - Fitch - CareEdge Ratings - Investors ## Static Knowledge **High-Value Background:** - Sovereign credit ratings assess a country's ability and willingness to repay debt, influencing borrowing costs. - India has never defaulted on sovereign debt, yet its ratings have been low for decades. **Exam Linkage:** - Useful for questions on capital markets, foreign investment, and India's external borrowing. **Concepts in Context:** - Investment grade vs junk status: ratings above 'junk' allow institutional lending; below signals high default risk. - Qualitative vs quantitative metrics: willingness to pay is subjective, ability is objective. **Institutions and Mechanisms:** - Economic Survey 2020-21 dedicated a chapter to rating agency bias. ## Dynamic Analysis ### Economy - Low ratings increase India's borrowing costs, affecting fiscal deficit and infrastructure spending. - Despite strong GDP growth and forex reserves, ratings haven't improved proportionately. - Rating upgrades in 2025 (S&P, DBRS, R&I) show some recognition but still below potential. - India's debt-to-GDP ratio is high, but most debt is domestic, reducing default risk. ### International Relations - India's criticism reflects broader developing country concerns about Western-dominated rating agencies. - Calls for reform align with G20 discussions on multilateral institution overhaul. - Bias in qualitative metrics may stem from subjective perceptions of political stability and governance. ### Governance - Government's push for domestic rating agency (CareEdge) highlights desire for alternative perspectives. - Economic Survey's chapter on rating bias indicates institutional effort to challenge methodologies. - Transparency in rating criteria is demanded; agencies often cite 'willingness to pay' without clear metrics. ## Prelims Takeaways - S&P upgraded India to BBB in August 2025, first upgrade in 18 years. ## Mains Value Addition **Arguments:** - Low ratings despite strong fundamentals suggest methodology bias against emerging economies. - Qualitative metrics like 'willingness to pay' are subjective and can perpetuate negative perceptions. - Higher borrowing costs due to low ratings hamper growth and fiscal consolidation. - India's domestic debt dominance reduces default risk, yet ratings don't reflect this. **Examples:** - Economic Survey 2020-21 highlighted that India is the fifth largest economy with lowest rating among peers. **Counterpoints:** - High debt-to-GDP ratio (over 80%) justifies caution by rating agencies. - Past defaults by other countries make agencies conservative on emerging markets. - Rating agencies argue their methodologies are consistent across countries. ## Way Forward - India should engage with rating agencies to clarify methodology and present data on willingness to pay. - Promote domestic rating agencies like CareEdge to provide alternative assessments. - Push for multilateral reform of rating agency regulations under G20 or UN framework. - Continue fiscal consolidation to improve debt metrics and strengthen case for upgrade.

Source: Economy