A de jure upgrade for Indian economy

To be sure, there is no denying the fact that the rating upgrade can bring tangible gains to India in terms of lower borrowing costs

Global rating agency S&P updated India’s sovereign outlook to “positive” after almost a decade. The upgrade has been done in the wake of robust growth prospects, improvement in the quality of government expenditure and expectations of broad continuity in policies.

While rating agencies play a big role in sovereign debt markets and driving overall investor sentiment about countries, the latest decision is more a de jure recognition of the fact that India has emerged as a bright spot in an otherwise turbulent and uncertain economic global environment (Bloomberg file photo)

While rating agencies play a big role in sovereign debt markets and driving overall investor sentiment about countries, the latest decision is more a de jure recognition of the fact that India has emerged as a bright spot in an otherwise turbulent and uncertain economic global environment. India being the fastest growing major economy in the world, occupying a strong position in the growing China+1 readjustment in global value chains, having seen as enjoying a large demographic dividend, and pulling large investments in infrastructure development are some of the factors which have been driving up India’s stock among global investors. While the government has welcomed the upgrade, it needs to be underlined that our economic policy establishment has also been critical of the approach of these rating agencies in the past. Such scepticism vis-à-vis sovereign ratings is desirable as long as deviations from prescribed economic orthodoxy are driven by political economy considerations which prioritise long-term gains for the economy from short-term palliatives. RBI’s decision to keep interest rates low during the pandemic when inflation was running above its target range and the decision to significantly breach FRBM norms to provide relief to the poorest people are some such examples.

To be sure, there is no denying the fact that the rating upgrade can bring tangible gains to India in terms of lower borrowing costs. It is all the more significant given the fact that India is going to be included in international bond indices from this year onwards.