Page 130 - ES 2020-21_Volume-1-2 [28-01-21]

Does India’s Sovereign Credit Rating reflect its fundamentals No! 113

Figure 40: India’s Consumer Price Inflation (Annual per cent Change)
and Sovereign Credit Rating Changes

14% 13.1%

12%
CPI Annual (% Change) 8% 4.3% 4.0% 3.9% 3.8% 6.7%
10%

6%

4%
2% 3.6%
0%
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Note: Red signifies year of rating downgrade. Green signifies year of rating upgrade.
Source: RBI and IMF

Figure 41: India’s Current Account Deficit (as per cent of GDP)
and Sovereign Credit Rating Changes

5%
4%
Current Account Defict (% of GDP) 2% 1.0% 0.3% 1.0% 1.8%
3%

1%
0%

-1%
-0.7%
-1.2%
-2%
-2.3%
-3%
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Note: Red signifies year of rating downgrade. Green signifies year of rating upgrade.
Source: RBI

3.51 Figure 41 shows India’s current account deficit (as per cent of GDP) in relation to sovereign
credit ratings changes during the period 1998-20. The pattern of correlation between sovereign
credit rating changes and current account deficit is not clear.

3.52 Figure 42 shows the average change in annual performance of these macroeconomic
indicators (GDP growth, fiscal deficit, general government debt, overall debt, inflation and
current account deficit) before, during and after a sovereign credit ratings change. It may be
seen that during years of India’s sovereign credit rating changes, the average performance
of macroeconomic indicators was better than or similar to the previous year. The average
performance of macroeconomic indicators further improved or was similar in the year after the
sovereign credit rating change.