India Deserves To Be Upgraded By A Notch, If Not Two, Says Sanjeev Sanyal

Sanjeev Sanyal. (Source: BQ Prime)

Rating agencies need to consider India's macroeconomic strength and upgrade it soon, said Sanjeev Sanyal, member of the Economic Advisory Council to the Prime Minister.

"In every indicator, you can see we do rather well, and yet we seem to be at the bottom end of the investment grade. I think this is not warranted," said Sanyal in an interview with BQ Prime.

Three major rating agencies, including Moody's, S&P Global, and Fitch, currently hold India's sovereign ratings at 'Baa3', 'BBB-', and 'BBB-', which are the lowest investment grades assigned by them, respectively.

According to Sanyal, the agencies need to consider India's large foreign exchange reserves and competitive external debt-to-gross domestic product ratio while considering an upgrade. "I have long argued that we should be rated at least one, if not two, rungs above where we are," Sanyal said.

He also criticised the use of per capita income as an indicator of sovereign rating. It is not clear why per capita income should be used as an indicator when we do not use per capita debt, he said. "After all, our ability to repay is related to our income vis-à-vis debt. So, when we take debt-to-GDP, then we should also take overall GDP, growth in GDP, or even the investment rate," Sanyal said.

Considering that India's current GDP is at $3.8 trillion, when the fourth-largest economy, Germany, is going through a recession, it would only be a matter of time for India to move ahead from the fifth rank, he said. Moreover, by 2028, it is "immensely doable" for India to become the third largest economy. From a purchasing power parity perspective, India is already the third largest economy, Sanyal said.

In terms of India's current inflation levels, Sanyal highlighted that the country is seeing a spike in vegetable prices and not from any components of core inflation. According to him, the spike in tomato or any other vegetable prices cannot be solved with tightening monetary policy but only through long-term agricultural policy reforms.

"There are generally no core inflation pressures in the country, and that's why the RBI stopped hiking two rounds ago. I think they are on top of the game as far as macro stability is concerned," Sanyal said.