Economic study slams credit rating agencies, saying they don’t reflect India’s economic fundamentals

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The 2020-21 economic survey criticized the methodology of credit rating agencies which led to undermining India’s sovereign credit ratings.

The study questioned sovereign credit ratings and said they did not properly reflect India’s strong economic fundamentals.

It calls for greater engagement with credit rating agencies to change their methodology that reflects economies’ ability to pay their external obligations.

The survey says these “loud, opaque and biased” ratings are hurting REIT flows into the country.

“While sovereign credit ratings do not reflect the fundamentals of the Indian economy, noisy, opaque and biased credit ratings harm REIT flows. The methodology of sovereign credit ratings needs to be changed to reflect the capacity and willingness of economies to pay their debts by becoming more transparent and less subjective,” the survey notes.

He further says that India has never failed in its sovereign obligations.

“India’s willingness to pay is unmistakably demonstrated by its track record of zero sovereign default. India’s ability to pay can be measured not only by extremely low foreign currency denominated sovereign debt, but also by the comfortable size of its foreign exchange reserves which can pay for short-term private sector debt as well as all of India’s stock of external debt, including that of the private sector,” the survey points out.

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