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Moody’s Upgrades Modi’s Rating

Anand Teltumbde ( is a writer and civil rights activist with the Committee for Protection of Democratic Rights, Mumbai.


Against the rising embarrassment of Prime Minister Narendra Modi’s monumental blunders on demonetisation and the goods and services tax (GST), the news of Moody’s Investor Services upgrading India’s sovereign rating from Baa3 to Baa2 has come as a shot in the arm for the beleaguered Bharatiya Janata Party (BJP). It managed to stop media discussions on the ill effects of demonetisation a year after its introduction and instead, made them carry government advertisements presenting curious figures as evidence for cleansing the economy of black money. Moody’s has suddenly boosted the BJP’s sagging morale. In its characteristic style, the BJP went on to claim what Moody’s did not mean. Amit Shah declared that Moody’s rating had vindicated Modi’s good work as India’s Prime Minister. Minister of Finance Arun Jaitley hailed the rating, affirming that “it was an evidence of the unparalleled good work done by the Narendra Modi-led government.” Capping the hyperbole, Minister of Railways Piyush Goyal predicted that India was entering a “golden era of growth and prosperity.”

Moody’s upgrade came close on the heels of another certificate from the United States (US). On 31 October 2017, the World Bank pushed India up 30 places from its previous ranking of 130 in its annual “Ease of Doing Business Report.” India stood out as one of the top 10 improved economies, including El Salvador, Malawi, Nigeria, and Thailand. Not to be ignored, another Washington DC-based global agency, the Pew Research Center declared a few days later that Modi had an enviable 90% approval rating. It was followed by the International Monetary Fund (IMF) chief Christine Lagarde certifying that the Indian economy is “on solid track.” One wonders at the timing of all these superlatives just ahead of the Gujarat elections that potentially pose a formidable challenge to Modi on his home turf, with practically all major non-Muslim communities (represented by Hardik Patel, Jignesh Mewani and Alpesh Thakor) being openly against him.

Decoding Moody’s Upgrade

Moody’s Investor Services is one of the “big three” credit rating agencies (CRAs) apart from Standard and Poor’s (S&P), and Fitch Ratings. All are headquartered in the US (Fitch being dual-headquartered in New York and Paris) and together represent a powerful monopoly and serve as influential actors in the world of finance. They are over a hundred years old but ever since 1975, they have gained power with the help of the US government, wherein the Securities and Exchange Commission (SEC) along with some private firms has framed rules such as to lend them the monopoly character they enjoy in financial markets today. For instance, the SEC mandated that pension funds could only invest in “investment grade” securities provided by the “big three.” To ensure their monopoly status, the SEC created the Nationally Recognized Statistical Rating Organizations, designating them as its first and only approved agencies by the US government from amongst many (on the contrary, IMF 2010 reports more than 70 CRAs). Thus, the US government effectively deputed these agencies to assess the creditworthiness of both companies as well as countries. They have played an important role in ordering developing economies along the Washington Consensus.

The business of assessing creditworthiness of a borrower goes back to the days of mercantile capitalism. Today, it extends to countries that borrow money by issuing bonds. CRAs provide investors with assessment of potential risks associated with “debt securities” from governments as well as companies on a rating scale, ranging from best to worst. Within the category of investment grades, it has 10 notches with Aaa holding the least risk and Baa3 moderate risk. In between, there are two more categories, namely, Aa1, Aa2, Aa3 and A1, A2, A3. Moody’s upgrade lifts India by one notch albeit within the same category of investment grade. Looking at the consistent rise of foreign direct investment flows into India from $2.4 to $43.5 billion during 2000–01 to 2016–17, with a similar rise in Indian companies’ borrowings from overseas markets, India’s Baa3 rating all these years does not seem to have come in their way. So, will the upgrade really push the existing trend of dollar inflow? It is unlikely. However, if it happens, it will exert an upward pressure on the rupee with undesirable consequences for the economy. Even a theoretical cheapening of the foreign currency debt may be of little use to government finances in lieu of its huge ($400 billion) foreign exchange reserves and most of its recent debt (96%) being domestic.

Dubious Neo-liberal Tool

Moody’s upgrade (along with the other US certificates to Modi) may not do much good to the economy but it would surely bury it deeper with the deflationary logic of neo-liberalism. Having achieved the upgrade, the government will be overtly conscious to not slip back as it will have huge political ramifications. Moody’s expressed two concerns: one, India’s management of fiscal deficit and two, her high debt to gross domestic product (GDP) ratio, which is at 68% as against the median rate of 44% for the Baa group countries (although, within the same rating, the debt to GDP ratio for countries like Italy and Spain stands at 132.6% and 99.4% respectively). Any deterioration on the above two counts may result in a downgrade of the rating for India.

India has already internalised this fiscal deficit fundamentalism at the cost of public welfare and managed its fiscal deficit reasonably well. It has been brought down from 5.8% of the GDP in 2011–12 to 3.5% in 2016–17. The combined fiscal deficit of the states and centre has also shown a downward trend. This year, the fiscal deficit of the government was pegged at 3.2% of the GDP, which is already under stress due to a sharp decline in the non-tax revenues on account of reduced dividend payouts from the Reserve Bank of India and public sector entities along with lesser-than-budgeted realisation from disinvestments and telecom spectrum auctions. The fiscal deficit will be further stressed by the additional expenditure of ₹2.11 lakh crore for bank recapitalisation and increased infrastructure spending. Given the structure of government finance, it is unlikely to bring down the debt to GDP ratio without cutting on developmental expenditure. The combined impact of these pressures is bound to hit the lower strata of society very hard.

There is copious criticism over the dubious role played by CRAs in driving neo-liberal politics of imperialism (Sinclair 2005; Ioannou 2016). It has largely been “camouflaged,” when compared with other more obviously imperial institutions, such as the IMF and the World Bank due to their private company status. Critiques have torn into the halo of independence, expertise, and empiricism associated with CRA ratings and even accused them of manipulation and outright corruption (Paudyn 2013). They were blamed for the financial crisis of 2007–08, which exposed how the underwriters “shopped” for ratings for mortgage-backed securities and “collateralised debt obligations” among vying rating providers (Coffee 2011). The Financial Crisis Inquiry Commission (2011) noted that of all the mortgage-backed securities it had rated triple A in 2006, Moody’s downgraded 73% to junk. Matt Taibbi’s report published by Rolling Stone magazine in 2013, titled “The Last Mystery of the Financial Crisis,” exposes how “the nation’s two top ratings companies, Moody’s and S&P, have for many years been shameless tools for the banks, willing to give just about anything (for) a high rating in exchange for cash.” In the case of the failures of Enron and WorldCom in 2001 and 2002 respectively, CRAs were accused of serious misdemeanour and conflict of interest as the Moody’s chairman Clifford Alexander Jr was serving on the board of WorldCom.

Modi (Mis)Management

Ever since 2014, Modi has focused on earning approbations from abroad to impress people. All these years, he lobbied with Moody’s for the upgrade. However, according to a Reuters report, until October 2016, Moody’s refused to oblige because of the fragility of India’s banking system (News Minute 2016). As late as September 2017, Moody’s analyst had declared that India would have to wait for a couple of years to get the upgrade. Then what changed within two months?

In the wake of the crucial Gujarat elections, which might serve as a prelude to the 2019 elections, everything seemed to be going wrong for the BJP. The first anniversary of demonetisation squarely exposed not only its ills but also the general mismanagement of economy. Economic growth fell to a three-year low at 5.7% in the June 2017 quarter; current account deficit hit a four-year high in the same quarter at 2.4% of GDP despite benign oil prices, the number of jobs created has lagged far behind the estimated one million people entering the workforce every month; weak investment demand; decelerating private consumption; contraction of the output of capital goods; shrinking of production of consumer durable goods; falling of the share of working capital loans in total lending; rising non-performing assets; and bad loans in state-owned banks touching ₹6.41 trillion by 31 March 2017 from ₹1.56 trillion on 31 March 2013, etc, were too stark to be covered with rhetoric. Even Jaitley had acknowledged the falling state of the economy and said the government was working on a stimulus package to revive it. A week thereafter, Modi himself revived the Prime Minister’s Economic Advisory Council, which he had made defunct after he became Prime Minister.

The BJP prominently trumpeted Moody’s upgrade on 16 November 2017 as coming after 14 years, carefully hiding the fact that India had enjoyed an A2 rating—the highest investment grade it ever got—until late 1990. On 4 October 1990, it was downgraded to Baa1 in the wake of India’s twin crisis of worsening balance of payments and fiscal indiscipline. On 26 March 1991, it was further downgraded two notches to Baa3, two months before India had to pledge its gold to avoid defaulting on external payments. On 24 June 1991, India plunged into the non-investment category at Ba2, a further downgrade of two notches. From 19 June 1998 (in the aftermath of India’s nuclear tests in Pokhran) to 22 January 2004, India remained classified in the non-investment or “junk” category. India’s last upgrade was 13 years ago in 2004, which was far more significant because it placed India back in the investment grade category after a gap of six years. Thus, historically speaking, there is not much to be made out of this Moody’s upgrade.

There are many other indices such as Infant Mortality Index (175/223), Global Hunger Index (100/119), Education Index (145/197), World Happiness Index (122/155), Human Development Index (131/188), etc, which are more relevant to the Indian people than Moody’s that Modi should mind.


Coffee, J C (2011): “Rating Reforms: The Good, the Bad and the Ugly,” Harvard Business Law Review, Vol 1, pp 231–78,

Ioannou, Stefanos (2016): “The Political Economy of Credit Rating Agencies: The Case of Sovereign Ratings,” PhD thesis, University of Leeds,

News Minute (2016): “Modi Government Tried (and Failed) to Influence Moody’s for a Ratings Upgrade,” 26 December,

Paudyn, Bartholomew (2013): “Credit Rating Agencies and the Sovereign Debt Crisis: Performing the Politics of Creditworthiness through Risk and Uncertainty,” Review of International Political Economy, Vol 20, No 4, pp 788–818.

Sinclair, T J (2005): The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness, Ithaca: Cornell University Press.

Updated On : 1st Dec, 2017


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