How the government lobbied Moody’s for a ratings upgrade — and failed
NEW DELHI The Union government pushed aggressively for a ratings upgrade by Moody’s, but the US-based agency declined to budge citing concerns over the country’s debt levels and its fragile banks.
A better credit rating on India’s sovereign debt would have been a much-needed endorsement of Narendra Modi’s economic stewardship. Previously unpublished correspondence between teh finance ministry and Moody’s shows New Delhi failed to assuage the ratings agency’s concerns about the cost of its debt burden and a banking sector weighed down by $136 billion (over ₹9 lakh crore) in bad loans.
In its letters and emails, the finance ministry questioned Moody’s methodology, saying it was not accounting for a steady decline in the India’s debt burden in recent years.
Moody’s and one of its lead sovereign analysts, Marie Diron, declined to comment, saying ratings deliberations were confidential. India’s finance ministry did not respond to requests for comment.
But Arvind Mayaram, former economic affairs secretary, called the government’s approach “completely unusual”. “There was no way pressure could be put on rating agencies,” Mayaram told Reuters. “It’s not done.”
Moody’s representatives, including Diron, visited North Block on September 21 for a discussion on a ratings review. Diron had just the previous day told local media that a ratings upgrade was some years away. On September 30, the company revealed its methodology to the offials in a teleconference.
On October 4, the finance ministry emailed Diron questioning Moody’s metrics on fiscal strength, and urged her to look at improvements in various factors.
Diron replied that not only was India’s debt burden high, its debt affordability was also low.
On October 27, economic affairs secretary Shaktikanta Das wrote again to Singaporebased Diron, urging a “better appreciation of the factual position”.
“In the light of stable external debt parameters and the slew of reforms introduced in the realm of foreign direct investment, you may like to reconsider your assessment on ‘external vulnerability risk’,” Das wrote.
However Moody’s on November 16 affirmed its Baa3 issuer rating for India while maintaining a positive outlook, saying the government’s efforts had not yet achieved conditions that would support an upgrade.