India pitches for a rating upgrade with Moody's, questions rating methodology

India made a strong pitch for a sovereign rating upgrade with Moody's and also questioned the parameters based on which the US-based agency accords ratings, sources said on Friday. Ahead of its annual review of the sovereign rating, Moody's Investors Service representatives met Indian government officials, during which the officials highlighted the reforms and strong fundamentals of the Indian economy.

A higher rating for India would mean the nation is less risky, translating into lower interest rates on borrowings. "Moody's acknowledged the positives of the Indian economy. We are hopeful for a rating upgrade from Moody's," an official said after the meeting. Moody's Investors Service has a 'Baa3' sovereign credit rating on India with a stable outlook. 'Baa3' is the lowest investment-grade rating.

Apart from highlighting India's ongoing economic reforms, government thrust on infrastructure development, and forex reserves nearing USD 600 billion, government officials also questioned Moody's on its rating parameters. Officials from all economy-related ministries and Niti Aayog attended the meeting. India has long questioned the methodology adopted by international agencies while assigning credit ratings and has nudged them to become more transparent and less subjective.

It has been pitching for amendments in sovereign credit rating methodology, saying it should reflect economies' ability and willingness to pay their debt obligations. Moody's representatives discussed the government's disinvestment roadmap, and officials highlighted that disinvestment should be seen through the prism of reform, not just as a revenue generation exercise.

In June 2020, Moody's downgraded India's rating to 'Baa3' from 'Baa2' with a negative outlook, citing a weak reform push and slow growth. In October 2021, the outlook on the rating was revised to stable. The government had largely met its fiscal objectives over the past two years. The fiscal deficit, which is the difference between government expenditure and revenue, narrowed to 6.4 per cent of GDP in the 2022-23 fiscal, from 6.7 per cent of GDP in the 2021-22 fiscal. In the current fiscal, the deficit is budgeted at 5.9 per cent of GDP. As per the fiscal consolidation roadmap, the government intends to bring down the fiscal deficit below 4.5 per cent of GDP by 2025–26.

Last month, two other global rating agencies, S&P and Fitch, kept India's rating unchanged at 'BBB-', with a stable outlook. All three global rating agencies—Fitch, S&P, and Moody's—have the lowest investment-grade rating on India, with a stable outlook. The ratings are looked at by investors as a barometer of the country's creditworthiness and impact on borrowing costs.