March 1, 2024

Lukmaan IAS

A Blog for IAS Examination




THE CONTEXT: The Indian government has raised concerns about the methodologies adopted by major global credit rating agencies, characterizing them as opaque and potentially discriminatory against developing economies like India.


  • This critique is outlined in a document titled “Re-examining Narratives: A Collection of Essays” released by the Finance Ministry, aiming to present alternative perspectives on economic policy areas influencing India’s long-term growth and development.

Sovereign Ratings Significance

  • Sovereign ratings are pivotal indicators of a government’s creditworthiness, influencing global investor perceptions about a country’s capability and willingness to repay debts.
  • Analogous to an individual’s credit rating impacting loan approvals and interest rates, sovereign ratings influence a nation’s borrowing abilities and the cost of borrowing from international markets.
  • Lower sovereign ratings typically result in higher interest rates for government and business borrowing, potentially hindering economic growth.

Impact on Developing Nations

  • For developing countries like India, access to capital is essential for leveraging natural resources and driving economic progress.
  • However, a poor sovereign rating can restrict borrowing opportunities, impeding their ability to harness available resources fully.
  • Moreover, a low government rating often translates into higher borrowing costs for businesses within the country, affecting overall economic development.

Role of Major Credit Rating Agencies

  • The critique specifically targets the three prominent global credit rating agencies: Moody’s, Standard & Poor’s, and Fitch.
  • These agencies have a substantial influence on global financial markets and investor perceptions, with their assessments impacting borrowing costs and economic growth prospects for nations worldwide.

Government’s Criticism: Methodological Issues

  • Opacity in Methodologies:
    • The government argues that the methodologies used by these agencies lack transparency and seem to disadvantage developing economies.
    • For instance, the Finance Ministry’s analysis indicates that certain assessments by Fitch regarding high foreign ownership in banking sectors favour developed economies, neglecting the positive roles of public-sector banks in fostering financial inclusion in developing nations.
  • Non-transparent Selection of Experts:
    • The government contends that experts consulted for rating assessments are chosen in an opaque manner, further contributing to the opacity of the evaluation process.
  • Lack of Clarity in Weightage Assignment:
    • Credit rating agencies allegedly do not clearly convey the weights assigned to each parameter considered in their assessments.
    • This opacity affects the interpretation of methodologies, making it challenging for countries to discern the assessment criteria’s significance and implications for their ratings.

Specific Methodological Critiques

  • The Finance Ministry’s analysis identifies specific issues with Fitch’s evaluation approach, highlighting the reliance on subjective assessments, such as the composite governance indicator and qualitative overlays.
  • The composite governance indicator heavily leans on perception-based surveys, possibly resulting in subjective assessments that may not accurately reflect economic realities.

Impact on Developing Economies

  • The government’s calculations suggest that Fitch’s emphasis on subjective indicators may disproportionately influence ratings for developing economies like India.
  • The reliance on these indicators, perceived as arbitrary and constructed from generalized perception-based surveys, could potentially hinder credit rating upgrades for developing nations, emphasizing the need for progress on subjective parameters.


  • The Indian government’s critique of global credit rating agencies centers on the opaque nature of methodologies, potential bias against developing economies, and the subjective nature of certain evaluation components.
  • Addressing these concerns are crucial for ensuring fair and accurate assessments that do not unduly disadvantage developing nations seeking to access global capital for their economic growth and development.


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