Why in news?

Speaking at a business conference in London, Commerce Minister Piyush Goyal questioned the methodologies of sovereign rating agencies, saying they have been "unfair to India."

He contrasted this with praise for one agency — CareEdge Ratings — for being "objective." This is not the first time India has raised this concern, and it has revived the debate over how the country is rated.

What’s in Today’s Article?

• What Do Rating Agencies Measure?
• The Key Distinction: Ability vs. Willingness to Repay
• How India Has Been Rated So Far?
• India's Core Objections
• Why CareEdge Ratings Is Favoured?

What Do Rating Agencies Measure?

• India is rated by seven international sovereign credit rating agencies: S&P, Moody's, Morningstar DBRS, Fitch, the Japanese Credit Rating Agency (JCRA), Rating and Investment Information (R&I), and CareEdge Ratings.
• The three most widely accepted globally are S&P, Fitch, and Moody's.
• Their core job is to measure an entity's ability and willingness to repay its debt. The entity can be a company, a municipal corporation, a state, or — in the case of sovereign ratings — a national government.
• How the scale works: Ratings use an alphabet scale. Fitch and S&P use AAA as the highest (Moody's uses Aaa), descending through AA+, AA, AA-, A+, A, A-, then into the 'B' ratings, down to D, which means the entity is in default.
• Why ratings matter: They determine the interest rate at which an entity can borrow. A AAA rating implies no default risk and the lowest borrowing costs. The lower the rating, the higher the perceived risk — and the higher the interest rate demanded to offset it.

The Key Distinction: Ability vs. Willingness to Repay

• This is the conceptual heart of the dispute. The two metrics are very different:
  • Ability to repay is largely quantitative — backed by hard numbers that show whether a country can service its debt.
  • Willingness to repay is largely qualitative — it relies on opinion and judgement rather than hard data.
• This distinction underpins India's entire grievance.

How India Has Been Rated So Far?

• For years, India has been rated at the lowest rung of investment grade — just a grade or two above "junk" status (the point at which lenders stop lending for fear of default).
• Strikingly, these ratings went unchanged for over a decade, and in some cases nearly two decades.
• Recent upgrades have come, but slowly:
• 
• Even after these upgrades, India remains only just above junk grade.

India's Core Objections

• Despite the upgrades, the government argues the ratings do not reflect reality. The agencies "haven't recognised the India growth story, the strong India fundamentals and the sovereign capabilities."
• The issue has even featured in official documents. The Economic Survey 2020-21 devoted an entire chapter to it. Its key arguments:
  • It was the first time the world's fifth-largest economy had been assigned such a low rating.
  • India's macroeconomic fundamentals are strong — more than enough to demonstrate its ability to repay.
  • On willingness, India has never defaulted on its sovereign debt despite several crises — which should be strong proof of its willingness to pay.
• The central allegation: Global agencies rely too heavily on qualitative metrics rather than quantitative ones. These qualitative judgements are often based on the opinions of a small group of experts, making them subjective and prone to skewing the overall rating.
• Meanwhile, quantitative metrics — where India performs relatively well — are given comparatively lower weightage.

Why CareEdge Ratings Is Favoured?

• CareEdge stands apart for two reasons:
  • It is the first sovereign rating agency headquartered in India, so the perception is that it can better capture the ground realities of India's economy.
  • More importantly, its stated methodology gives primary importance to quantitative factors — precisely the metrics on which India scores well, and precisely the fix India has been demanding of the global agencies.

Conclusion

• India's dispute with global rating agencies boils down to a single argument: that ratings lean too much on subjective, opinion-based qualitative judgements and too little on hard quantitative data, where India performs well.
• With strong fundamentals, a clean record of never defaulting, and status as the world's fifth-largest economy, New Delhi feels its persistent ranking just above junk grade is unjustified.
• The recent upgrades by S&P, Moody's, R&I and others suggest some movement, but the deeper concern remains — that the methodology itself needs reform.
• The government's endorsement of the India-headquartered, quantitatively-driven CareEdge signals the kind of approach it believes would rate India more fairly.