India poses defiantly, eyeing Moody’s rating upgrade

In a highly significant move, Indian government representatives have forcefully demanded a sovereign rating upgrade from Moody’s Investors Service. Government officials hosted an assembly with Moody’s representatives ahead of the agency’s annual review of India’s credit rating, in a bold attempt to convince the renowned US-based agency to reconsider the current sovereign rating status based on the country’s economic transformation and bolstered financial fundamentals.
Moody’s holds a ‘Baa3’ sovereign credit rating over India, maintaining a stable outlook. This rating represents the lowest investment grade, yet India, at the doorstep of significant economic evolution, is questioning the conventional parameters that guide the credit rating agencies’ verdicts.
The Indian government posits that a higher rating, synonymous with lower financial risk, would enable lower interest rates on borrowings. This could potentially act as a vital catalyst to a fresh wave of investments in the country, thus stimulating further growth.
During the meeting, a source affirmed that Moody’s did acknowledge the positive attributes of India’s economy. The representative from the Indian government relayed, “We are hopeful for a rating upgrade from Moody’s.” However, it remains to be seen how this optimism will translate into the tangible outcomes India seeks.
Government officials highlighted a slew of economic reforms, the focus on infrastructure development, and the country’s Forex reserves edging close to an impressive USD 600 billion. They urged the agency to reconsider its judgement standards and align them with the ground realities of India’s promising financial landscape.
A broad spectrum of representatives, from various economy-related ministries and Niti Aayog, were in attendance at the meeting, reflecting the importance India attaches to the issue.
For years, India has expressed scepticism over the methodologies adopted by international credit rating agencies. The country has persistently pushed for greater transparency and less subjectivity in these procedures, advocating for reforms that better reflect economies’ ability and willingness to repay their debts.
Among the discussed points, the government’s disinvestment strategy was a significant topic. Indian officials emphasised that disinvestment is a strategic manoeuvre, a move toward reform rather than merely a revenue generation exercise.
In June 2020, Moody’s downgraded India’s rating from ‘Baa2’ to ‘Baa3’ with a negative outlook, due to a perceived lacklustre reform push and slowing growth. However, in October 2021, the outlook was revised to a stable one. This change in stance was backed by the country meeting its fiscal objectives over the past two years.
India’s fiscal deficit narrowed from 6.7% of GDP in the 2021-22 fiscal to 6.4% in the 2022-23 fiscal. The deficit for the current fiscal is budgeted at 5.9% of GDP. According to the government’s fiscal consolidation roadmap, the intention is to reduce the fiscal deficit below 4.5% of GDP by 2025-26.
Two other global rating agencies, S&P and Fitch, maintained India’s rating at ‘BBB-’, again with a stable outlook, last month. These ratings are carefully watched by investors as a measure of a country’s creditworthiness and they substantially impact borrowing costs.
As India finds itself at a potential turning point, the implications of this groundbreaking confrontation with Moody’s are highly anticipated, and the outcome may very well shape the future trajectory of India’s economic landscape.