Regulators on guard to stave off a potential sovereign rating downgrade

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) — regulators for the financial sector — along with the finance ministry, have raised their guard to stave off a possible sovereign rating downgrade.

Trimming of India’s sovereign ratings to the lowest investment grade by Moody’s Investors Service has triggered the move.

People in the know said the government has asked senior officials from regulators and the ministry to attend conferences and meetings organised by these global ratings that discuss challenges in the Indian economy, among other issues.
 

A senior bureaucrat privy to the plan said they want to be aware of any intervention needed. Besides, they also seek to understand the critical variables, especially the often-debated fiscal prudence, growth, and other factors needed to revive economy according to them.
 

The people cited above added that the exercise of attending such meetings had begun. These meetings are attended typically by economists from different countries, I-bankers, as well as public and private players, to share thoughts and insights on the macro situation. “This is being responsive and more proactive, especially at global forums where several ideas are exchanged and perspectives discussed, about the ways ratings have been assigned. The platform engages people to do counter-productive arguments on ways to revive growth,” said a rating firm source.

 

The ratings or outlook of the country are among key factors for foreign institutional investors to allocate investments. This is why the government wants to put more focus on these global platforms to check the people’s pulse.
 

In the aftermath of the pandemic, people at global forums started debating on relaxing the fiscal prudence parameter that would allow intensive spending by emerging nations, including India. 
 

The issue came into spotlight after Moody’s on June 2 downgraded India’s foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2. It also downgraded India’s local-currency senior unsecured rating to Baa3 from Baa2, and short-term local currency rating to P-3 from P-2.
 

Overall, the outlook remains negative.