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

Published 2026-07-07 · Updated 2026-07-07 · 3 min · 495 words

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.

Primary/reference source: Economy