Sovereign credit ratings: Give local rating agencies a chance
India will likely retain its position as the fastest-growing large economy for the third successive year in 2024-25. Besides price stability, which has been achieved even under difficult global conditions, the post-covid fiscal rollback has been smooth because there were few cash giveaways. The upward adjustment of the monetary policy rate was done smoothly; it did not upset India’s growth momentum, unlike in the West, where higher policy rates are going against growth.
India is receiving high foreign direct investment. Foreign portfolio investor interest too is high, given this year’s inclusion of Indian government bonds in the JPMorgan Bond index for emerging markets. Investors are more than eager to put their money on the table when it comes to India.
Yet, our credit rating remains on the precipice of just about being investment grade. Clearly, something is amiss. There is a consensus that there needs to be more competition in the credit rating space post-Lehman.
But progress has been limited, even though attempts have been made by agencies in different countries to form new outfits based on partnerships. Sovereign ratings are still the hallowed domain of the Big Three ratings companies. The main issue is one of acceptability.
Investors should accept the ratings given by a rating agency. While domestic agencies do well in their domain of company ratings, the challenge is assigning sovereign ratings, and for these to find acceptance across geographies. Making a breakthrough on this is difficult, but not impossible.
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