The Economic Survey 2021 released on Friday said that India's sovereign credit ratings do not reflect its fundamentals.
Never in the history of sovereign credit ratings has the world's fifth largest economy been rated as the lowest rung of investment grade (BBB-/Baa3), it said.
The survey said credit ratings map the probability of default and therefore reflect willingness and ability of borrower to meet its obligations.
"India's willingness to pay is unquestionably demonstrated through its zero sovereign default history. The country's ability to pay can be gauged by low foreign currency denominated debt and forex reserves," it said.
The survey said sovereign credit rating changes for India have no or weak correlation with macroeconomic indicators.
Despite ratings not reflecting fundamentals, they can however be pro-cyclical and can affect equity and debt FPI flows of developing countries, causing damage and worsening crisis.
"It is, therefore, imperative that sovereign credit ratings methodology be made more transparent, less subjective and better attuned to reflect economies' fundamentals," it added.
( With inputs from ANI )
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