ECONOMIC SURVEY 2020-21: SOVEREIGN CREDIT RATINGS

Jan. 31, 2021

The Economic Survey 2020-21 has called for sovereign credit ratings methodology to be made more transparent, less subjective and better attuned to reflect an economy’s fundamentals.

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Never in the history of sovereign credit ratings, has the fifth largest economy in the world been rated at the lowest rung of the investment grade (BBB-/Baa3) except in the case of China and India.
Reflecting on the economic size and thereby ability to repay debt, at all other times, the fifth largest economy has been predominantly rated AAA.
The Survey points out that the Sovereign Credit Ratings can be pro-cyclical and affect equity and debt FPI flows of developing countries, causing damage and worsening crisis. Hence, it has called for addressing the bias and subjectivity inherent in sovereign credit ratings methodology
India has already raised the issue of pro-cyclicality of credit ratings in G20.

Source : PIB