International credit rating methods must evolve: FM Nirmala Sitharaman

FM Sitharaman says India's sovereign rating understates macro strength and urges reform in global rating criteria to unlock more private capital and lower financing costs

India’s sovereign rating does not fully reflect its macroeconomic stability, even with a sustained high growth trajectory and sound fiscal management, Finance Minister Nirmala Sitharaman said on Monday, while stressing the need for international credit rating methodologies to evolve.

 

Delivering a keynote address at the International Business Forum’s leadership summit in Seville, Spain, Sitharaman said, “Reforming rating methodologies would not only enhance fairness, but also reduce financing cost and unlock far greater volumes of private investment.”

 

The Finance Minister said that the rating agencies’ methodology needs to better reflect the structural strength and long-term resilience of emerging markets and developing economies (EMDEs), where actual financial flows have struggled to gain momentum.

 

“This underscores the need for early, structured engagement between multilateral development banks and credit rating agencies to recalibrate risk assessments and unlock sustainable capital at scale,” she added.

 

Earlier this month, finance ministry officials had met analysts from Moody’s Ratings, making their case for a ratings upgrade on the back of macroeconomic stability, fiscal prudence and benign inflation.

 

In May this year, global sovereign credit rating agency Morningstar DBRS upgraded India’s long-term foreign and local currency issuer ratings from BBB (low) to BBB with a stable trend. S&P Global Ratings, however, said that while no immediate rating actions had been taken, the situation arising from regional tensions introduces material uncertainty that could weigh on sovereign credit profiles if they persist. 

 

Addressing the panel discussion on From Fourth Financing for Development (FFD4) Outcome to Implementation: Unlocking the Potential of Private Capital for Sustainable Development, Sitharaman highlighted that mobilising private capital was not just a financing strategy but a development imperative.

 

“In an era of volatile FDI flows and mounting global uncertainty, private capital has emerged as an increasingly important source of development finance.”

 

Sitharaman also called for support for micro, small and medium enterprises in order to unlock capital at the grassroots level.

 

She stressed the need to scale up blended finance through tools such as sovereign green bonds, thematic bonds and impact investment instruments. Addressing perceived risks through institutional reforms is also crucial, she said.

 

The Finance Minister added that multilateral development banks and development finance institutions (DFIs) need to take on a stronger enabling role by providing support through concessional finance, guarantees, credit enhancements and project preparation.