Our S&P rating upgrade should cheapen loans and draw capital

It vindicates India's argument while easing private access to capital and enabling greater inflows

- MADAN SABNAVIS

The big three of the global credit rating business, Standard & Poor's (S&P), Moody's and Fitch, have a dominant market presence. While one could dispute their rationale behind a rating, the market accepts their assessments, which is what matters when any company is borrowing overseas. Therefore, while the Indian government does not borrow in the global market, since its debt is denominated in rupees, all Indian companies encounter the impact of a global rating as their own rating is benchmarked with that of the sovereign. While some corporations may have a higher rating of a notch or two, depending on their global business, the creditworthiness of most Indian companies is tied to the sovereign rating. Their cost of borrowing, thus, depends on how the world's big three rate the government as a debtor.

The government has been trying to convince these agencies that India deserves a much higher rating. The country's growth story has been one of the best in the world, both before and after Covid. Fiscal consolidation has been pursued in the best possible manner and the external account has been robust with low current account deficits and strong capital inflows. All this has been under a stable inflation environment. This is the context in which India's recent rating upgrade by S&P should be viewed.