Context:

The global credit rating agency S&P upgrades India’s credit rating outlook to ‘positive’ from ‘stable’, the first change in 14 years.

Key Highlights: 

S&P Global Sparks Hopes for Sovereign Rating Upgrade

• This decision, which keeps India's sovereign credit ratings at 'BBB-/A-3'—the lowest on the scale—was influenced by India's strong economic fundamentals, robust growth momentum, and government spending. 
• It highlighted that cautious fiscal and monetary policies, reducing the government's debt and interest burden, and bolstering economic resilience could lead to a higher rating in upcoming years.

Reasons for the Upgrade:

• S&P Global cited several factors for the positive outlook, including policy stability, deepening economic reforms, and high infrastructure investment. 
• The agency believes these elements will sustain long-term growth prospects.

Impact of Sovereign Credit Ratings:

• A sovereign credit rating reflects a government's ability to repay its debt. 
• Higher ratings imply greater trust in repayment capabilities, leading to lower borrowing costs in the international bond market.
• A good credit rating is a sign of financial responsibility and stability. It allows a country to borrow money more cheaply, access more capital, and attract foreign investment, all of which contribute to a stronger and more prosperous economy.

What is a Credit rating?

• A credit rating measures the creditworthiness of a borrower, whether it’s an individual, a company, or a country.
• A sovereign rating is a type of credit rating that assesses the overall economic condition and financial stability of a nation. 
• Some of the major ‘Global key Credit rating agencies’ are: - Standard & Poor’s, Moody’s, and Fitch Ratings, etc.                  

Credit grading system of major agencies: 

Rating Parameters 

• Rating agencies consider various factors, including growth rate, inflation, government debt, short-term external debt as a percentage of GDP, and political stability.

Issues regarding Sovereign Rating

• The opaque methodologies fail to accurately reflect the default risk of developing economies.
• Developing economies face challenges due to arbitrary indicators, potential biases, lack of transparency in expert selection, unclear parameter weights, and subjective assessments favoring advanced economies.

Credit Rating Agencies in India 

• The Securities and Exchange Board of India (SEBI) is the primary authority that approves or regulates Credit Rating companies in India and their various functionalities.

Some of the main credit rating agencies are: - 

• Credit Rating Information Services of India Ltd. (CRISIL).
• Investment Information and Credit Rating Agency of India (ICRA) Ltd.
• CARE, Brickwork Rating, India Rating and Research Pvt. Ltd, etc.