Most important topic that is hardly discussed!
🚩At 4% fiscal deficit and 55% debt to GDP, India has a sovereign rating of BBB- (just one notch above junk)
💲At 18% fiscal deficit and 150% debt to GDP, USA has a sovereign rating of AAA
Something is rotten here.
🚩At 4% fiscal deficit and 55% debt to GDP, India has a sovereign rating of BBB- (just one notch above junk)
💲At 18% fiscal deficit and 150% debt to GDP, USA has a sovereign rating of AAA
Something is rotten here.
To clarify a misconception:
The limited Covid response stimulus in India (1% of GDP) vs US (10%) or Japan (20%) has less to do with risk of Fiscal deficit but more to do with fear of stagflation if it doesnt bring back demand. One notch downgrade & we are junk = FDI/FII sell off
The limited Covid response stimulus in India (1% of GDP) vs US (10%) or Japan (20%) has less to do with risk of Fiscal deficit but more to do with fear of stagflation if it doesnt bring back demand. One notch downgrade & we are junk = FDI/FII sell off
A BBB- rating is the last Investment grade rating and BB+ onwards classifies as non investment grade. Global funds of funds are not mandated to invest in sub investment grade sovereign papers. Understand the flux before criticizing. 
The wiki list of countries by sovereign rating has many names with worse country level Balance sheet . Eg: Japan has 270% Debt to GDP and deflationary environment, but an A+ rating.
Will be interesting to a X-Y plot of countries by rating & Debt to GDP.
en.m.wikipedia.org/wiki/List_of_c…
Will be interesting to a X-Y plot of countries by rating & Debt to GDP.
en.m.wikipedia.org/wiki/List_of_c…
Replying to 2 observations in comments.
1. Others factors like per capital GDP.
One can complicate to the hilt, but any rating ultimately boils down to 2 factors:
1. Ability to repay
2. Intent to repay
At Indian "government" level, both are comfortable. No default in history
1. Others factors like per capital GDP.
One can complicate to the hilt, but any rating ultimately boils down to 2 factors:
1. Ability to repay
2. Intent to repay
At Indian "government" level, both are comfortable. No default in history
Q2. US is the reserve currency and virtually controls the global flow.
Partially true, but US has unsustainable debt which keeps ballooning & they can PRACTICALLY never repay. Just US student debt is almost equal to India's GDP.
Look at this chart
Partially true, but US has unsustainable debt which keeps ballooning & they can PRACTICALLY never repay. Just US student debt is almost equal to India's GDP.
Look at this chart
Just adding a point on implication:
Low sovereign rating means India doesnt have avenue to borrow cheap and hence interest burden of debt is high. The raters probably maintain it that way on Emerging Market economies, a vicious cycle that should get broken at some point.
Low sovereign rating means India doesnt have avenue to borrow cheap and hence interest burden of debt is high. The raters probably maintain it that way on Emerging Market economies, a vicious cycle that should get broken at some point.
