Page 103 - ES 2020-21_Volume-1-2 [28-01-21]

86 Economic Survey 2020-21 Volume 1

3.2. A similar trend is seen in PPP current international $ terms. Since 1994, the only times
that the sovereign credit ratings of the third largest economy in PPP terms has steeply declined,
has been when emerging giants China and India have become the third largest economy.
Figure 2 shows that the sovereign credit rating of the third largest economy (PPP) declined
sharply in 1994 by two CRAs, following China’s entry into the top three economies. Similarly,
the sovereign credit rating of the third largest economy (PPP) declined sharply in 2009 by two
CRAs, following India’s entry into the top three economies.

Figure 2: Sovereign Credit Rating of Third Largest
Economy (PPP Current International $)

Sovereign Credit Rating S&P/Moody's

Source: Bloomberg and World Bank

INDIA’S SOVEREIGN CREDIT RATINGS

3.3 This anomaly in sovereign credit ratings has continued for India. Currently, India is rated
investment grade by three major CRAs – S&P, Moody’s and Fitch. India’s sovereign credit
ratings during 1998-2020 are presented in Table 1. Rationale given for the same by these
CRAs is depicted in Figure 3. India’s sovereign credit rating downgrades during 1998-2018
are mainly confined to the 1990s on account of the post-Pokhran sanctions in 1998. India’s
sovereign credit ratings upgrades have mainly been witnessed in the second half of 2000s, in
recognition of higher economic growth prospects and strengthened fundamentals of the Indian
economy.

3.4 Further, during most of the 1990s and mid 2000s, India’s sovereign credit rating was
speculative grade. India’s credit rating was upgraded to investment grade by Moody’s in 2004,
Fitch in 2006 and S&P in 2007 (Table 1). Notably, Indian economy grew at an average rate
of over six per cent (Figure 4), and at approximately eight per cent in several years during
this period. Hence, during most of the decade of 1990 and early 2000’s, India’s high rate of
economic growth co-existed with a sovereign credit rating of “speculative grade”.