Taking on foreign counterparts like Moody’s, Fitch and S&P Global, India-based CareEdge Global IFSC Ltd – a subsidiary of CARE Ratings Ltd – will now issue sovereign ratings of global economies. The rating agency has assigned sovereign ratings to 39 countries including India. 

This report on sovereign ratings unveiled at GIFT City was hailed by K Rajaraman, Chairperson of International Financial Services Authority (IFSCA) in Gujarat who felt that India-based credit rating agencies assigning sovereign ratings to the rest of the world can help reconstruct India’s narrative across the globe and influence investment decisions and borrowing costs.

“Currently, global credit ratings are dominated by agencies from the developed world. These agencies assess the creditworthiness of governments, corporations and other entities, providing ratings that influence investment decisions and borrowing costs worldwide. Their assessments play a crucial role in the financial markets, he said, in a recorded address, at the launch of the global sovereign ratings by CareEdge at GIFT City.

Foreign agencies were seen to be obstinate when it came to their views on India. Though India has consistently pitched for better ratings, agencies follow their own logic on fiscal math.  Fitch, for example, has recently confirmed India’s long-term credit rating at ‘BBB-’. CareEdge Ratings on Thursday assigned ‘BBB+’ rating to India.

“Today is a significant milestone that an Indian credit rating agency for the first time will assign sovereign ratings to the rest of the world,” Rajaraman said

“This is an important step for us as a rising economy to mark a shift where we do not allow others to risk, reconstruct our narrative. Instead it is time to see if we are confident enough to create a perception of our own now,” he added.

BBB+ to India

The rating given to India is based on the resilient post-pandemic rebound of the Indian economy and increased focus on infrastructure investment. Apart from India, BBB+ rating has also been assigned to Botswana and the Philippines in the report.

“India’s high foreign exchange reserves and low levels of external debt contribute to a favourable external position, supporting its overall credit profile. However, these positives are balanced against high general government debt and weak debt affordability. The economy continues to lag in global competitiveness and has a low per capita income,” according to the report. by CareEdge

Economic growth has remained healthy, rising by 8.2 per cent in FY24 and is projected to remain around 6.5-7 per cent over the next five years. Growth has been supported by strong capex push by the government with gross fixed capital formation rising to 30.8 per cent of GDP in FY24 compared to 29.5 per cent in FY19.

The government’s continued focus on the development of infrastructure and resolving logistic bottlenecks bodes well for boosting the overall growth potential. India also enjoys a favourable demographic structure. Going ahead, there is a need to increase investment in human capital and create more employment opportunities to fully reap the demographic dividend. However, India faces challenges from a low per capita income at $7638 (constant PPP terms) in 2023, the report added.

In its first sovereign rating action, CareEdge Global has assigned AAA rating to Germany, the Netherlands, Singapore and Sweden, AA+ to Australia, Canada and the US, AA- to France, Japan, Korea, UAE and UK, A rating to China and Spain and A- to Chile, Malaysia and Thailand, among others.

“This is a significant milestone for us in our journey towards becoming a global knowledge-based institution. As India’s economic influence grows, it is both timely and appropriate for an Indian company to enter this domain... We are convinced that it is very important to have transparency in the methodology of sovereign ratings, particularly in assessing the growth potential and investment needs of economies. This reflects in the ratings assigned by us,” said Mehul Pandya, MD and Group CEO, CareEdge. 

The CareEdge Sovereign Ratings methodology involves analysis under five broad pillars to determine a sovereign’s creditworthiness. These are economic structure and resilience, fiscal strength, external position and linkages, monetary and financial stability and institutions and quality of governance.