“Never in the history of sovereign credit ratings has the fifth largest economy in the world been rated as the lowest rung of the investment grade (BBB-/Baa3). Reflecting the economic size and thereby the ability to repay debt, the fifth largest economy has been predominantly rated AAA,” said the report released on Friday.
The Survey accused them of biasness, saying India is a clear outlier on several parameters, and this has been the case during the last two decades. “The Survey’s findings are consistent with a large academic literature that highlights bias and subjectivity in sovereign credit ratings, especially against countries with lower ratings.”
India has in the past criticised sovereign rating agencies like Moody’s and S&P. The central government had criticised Moody’s last year for downgrading India to the lowest investment grade with a negative watch.
“Credit ratings map the probability of default and therefore reflect the willingness and ability of the borrower to meet its obligations. India’s willingness to pay is unquestionably demonstrated through its zero sovereign default history,” the Survey said.
“India’s ability to pay can be gauged not only by the extremely low foreign currency denominated debt of the sovereign but also by the comfortable size of its foreign exchange reserves that can pay for the short term debt of the private sector as well as the entire stock of India’s external debt including that of the private sector.”
The Survey also indicated that investors have also ignored the sovereign ratings actions by agencies as these have not had a major adverse impact on select indicators such as Sensex return, foreign exchange rate and yield on government securities.
However, the Survey accepted that despite ratings not reflecting fundamentals, noisy, opaque and biased credit ratings damage FPI flows.
It called for engaging with credit rating agencies to make the case that their methodology must be corrected to reflect economies’ ability and willingness to pay their external obligations.