With a few months left for Moody's sovereign ratings, it has emerged that the Indian government had aggresively pitched for an upgrade, even questioning the methodology followed by the credit ratings agency.
However, the agency was reluctant to make any changes and on November 16 affirmed the Government of India's Baa3 issuer and senior unsecured ratings and maintained the positive outlook on the rating.
Notedly, Baa3 is Moody's lowest notch for debt considered investment grade.
The agency cited country's debt levels and fragile banks as major reasons for its decision.
After NDA allaince stormed to power in 2014, Prime Minister Narendra Modi unveiled a slew of measures to boost investment, cool inflation and narrow the fiscal and current account deficits, but his policies have not been rewarded with a ratings upgrade from any of the “big three” Moody's, Fitch and S&P global ratings agencies, who say more is needed.
A higher rating would signify to bond investors that India was more creditworthy and help to lower its borrowing costs.
Winning a better credit rating on India's sovereign debt would have been a much-needed endorsement of Prime Minister Narendra Modi's economic stewardship, helping to attract foreign investment and accelerate growth.
According to a report by Reuters, in letters and emails written in October, the Finance ministry questioned Moody’s methodology, saying it was not accounting for a steady decline in the India’s debt burden in recent years. It said the agency ignored countries’ levels of development when assessing their fiscal strength, the report said.
However, the government’s arguments failed to assuage the ratings agency’s concerns about the cost of its debt burden and a banking sector weighed down by $136 billion in bad loans.
Moody’s said India’s debt situation was not as rosy as the government maintained and its banks were a cause for concern.
While India's debt-to-GDP ratio has dropped to 66.7 percent from 79.5 percent in 2004-05, interest payments absorb more than a fifth of government revenues.
