Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Credit rating


From UPSC perspective, the following things are important :

Prelims level: Credit Rating Agencies

Mains level: Paper 3- Issue of rating given to India by global credit rating agencies

The Economic Survey-2020-21 highlights the issue of the adverse rating given to emerging economies by global credit rating agencies. This article suggests using our flawless repayment record as the basis of argument.

Prejudice against emerging economies

  • The Economic Survey for 2020-21, charged international credit rating agencies with prejudice against emerging economies such as India and China.
  • The Survey has used economic size as an argument.
  • The economy that is the world’s fifth-largest has predominantly been rated AAA, S&P’s top rating.
  • By contrast, India, which displaced the UK in 2019 as the world’s fifth-largest, has been rated BBB-, the lowest investment grade.
  • The Survey points out that since 1994, only twice has the credit rating (as assigned by S&P and Moody’s) of the fifth-largest economy in US dollar terms been poor.
  • This was when China and India rose to that rank, in 2005 and 2019 respectively.

Issues with Credit Rating

  •  Rating agencies rarely get credit quality right and they have been found to be well behind the curve in almost every default crisis.
  • The behavior of these agencies has been pro-cyclical, which is often seen to aggravate crises and fuel bubbles.
  • They are too lenient when the times are good, and too harsh when economic conditions worsen, making booms and busts that much more dramatic.

What should be the basis of India’s argument

  • Unless the country has the privilege of printing the world’s reserve currency, as the US has, there is nothing special that ensures a large economy will always repay what it owes.
  • India’s argument should revolve around the country’s flawless repayment record.
  • The last time we were on the verge of a sovereign default, in 1991, we reformed our economy.
  • Today, the country has foreign exchange reserves in excess of $584 billion, while its total external debt, including that of the private sector, is a shade over $556 billion.

Consider the question “The Economic Survey of 2020-21 point to the adverse rating of India economy by the global rating agencies. What is the significance of such ratings for the economy. What should be the basis of the argument against India’s adverse rating by the agencies?”


Despite the above-mentioned factors, we still find that Indian borrowers must pay higher rates of interest overseas than they would have to with a better rating. Global rating agencies need to overhaul their methodology to better reflect reality.

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