Recently, Moody’s, an American ratings agency has downgraded India’s rating to negative owing to India’s measures against Covid-19. Experts believed that this a biased rating and thus the need of having an own sovereign credit rating agency has increased. But before that we need to know what are the perils of not having our own rating agency and benefits of having one.
Crux of the Matter
What Is A Rating Agency? Credit Rating Agency is an independent company, which evaluates the financial condition of other companies and rates according to the company’s ability to repay the debt payments. Moody’s, Fitch, and Standard & Poor’s (S&P) are the world’s top three leading rating agencies. Sovereign Rating is an assessment of the creditworthiness of a country. It also represents the riskiness of a country’s bonds. It takes account factors like economic policies, GDP growth rate, balance of payments, inflation rate, political stability, etc. As of now, India doesn’t have its own sovereign rating agency.
A Pressing Need Today, India has emerged as the world’s fifth-largest economy. India’s ties in the terms of geopolitics, trade & commerce, strategic partnership, and military collaboration have increased significantly in recent years. A sovereign rating of India plays a major role in a country’s development. There remains a possibility that credit rating agencies may publish biased ratings if the beneficiary country compels or if geopolitical ties are deteriorating. Moreover, foreign agencies’ ratings could be influenced by the ruling government of that country. Thus, India needs its own sovereign rating agency.
Own Agency If India has its own sovereign rating agency the rating of India will be unbiased. Moreover, the unbiased rating would increase the competition between rating agencies, which will result in the publishing of less biased ratings by foreign agencies. Today, India has many potential domestic institutions like Centre for Advanced Financial Research and Learning (Cafral), the Reserve Bank of India’s (RBI) policy research wing with enough intelligence to come up with its own ratings. Greater transparency in rating decisions and the use of cross-cultural teams can mitigate biases. Having a sovereign rating agency will also enable India – a country that has never defaulted on its debt – to rate other countries.
Curiopedia
The “country risk rankings” table shows the ten least-risky countries for investment as of January 2018. A. M. Best defines “country risk” as risk related to country-specific factors which could adversely affect an insurer’s ability to meet its financial obligations.
The Big Three credit rating agencies are Standard & Poor’s (S&P), Moody’s, and Fitch Group. According to an analysis by Deutsche Welle, “their special status has been cemented by law — at first only in the United States, but then in Europe as well.”
John Moody was an American financial analyst, businessman and investor. He pioneered the rating of bonds and founded Moody’s Investors Service. In 1975, the company was identified as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S. Securities and Exchange Commission.
Curated Coverage
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