India’s rating should be at least AA: IMF’s KV Subramanian

Sovereign rating: India has taken centre stage in a resounding call for reform within the sovereign credit ratings bestowed upon by the global rating agencies. This week, at the prestigious UN assembly, KV Subramanian, Executive Director of the International Monetary Fund representing India's economic interests highlighted a glaring discrepancy in sovereign ratings and said India’s rating should at least be AA.

Taking to X, Subramanian said, “ Never in the history of ratings has the 5th largest economy - India - been rated BBB.  Rating is purely a mapping onto the probability of default, which depends in turn on (a) ability to repay & (b) willingness to repay.”

According to him, India's rating fails to accurately reflect its robust ability and unwavering willingness to meet financial obligations, both critical markers in the arena of credit assessment He added further that on both fronts, the ability to repay and willingness to repay “India should be at least AA.”

What is an AA rating?

According to the global rating agency Moody’s, an AA rating is an obligation judged to be of high quality are subject to very low credit risk. Currently, India’s rating is Baa3 which means a gradual improvement in fiscal metrics amidst robust growth prospects. Baa signifies moderate credit risk.

India’s Ability to Pay

Delving deeper into it, IMF’s executive director Subramanian said, “On ability to repay, our forex debt is minimal even accounting for private borrowing. And our willingness to repay is the gold standard… even when India faced its worst BoP crisis, we shipped gold to the Bank of England and the Bank of Japan to get forex.”

He also urged the UN, IMF and World Bank to work together to ensure that Sovereign Rating Agencies rectify fundamental problems in their model. This is necessary so that the optimal financing for climate change comes into Emerging and Less Developed economies.