In 2000, India was rated BB. Then, in 2005, CRA upgraded India to BB+ and finally, in the 2006-07 period, to BBB-, where it has remained ever since. Independent India has never defaulted. It last went to the IMF in 1991 but repaid its debt early. The Asian financial crisis in 1999 and the global financial crisis in 2008 did not impact India. In 2012, with a minor hiccup in its economy, S&P immediately gave a negative rating outlook to its BBB- rating, and only in 2024 has given a positive outlook.

If we compare the macroeconomic parameters of India with Greece it reveals the following.

In 2000, India’s Gross Domestic Product (GDP) was 3.5 times that of Greece; in 2024 it is 15 times Greece’s economy. Over the past 30 years, India’s GDP has grown by 6.5% as compared to 2.8% for Greece. India has shown amongst the strongest post-Covid recovery with its GDP growing 7.5% post 2021 to Greece’s 5.6%. India managed the aftermath of the Covid better than most. Post-Covid 6.5% inflation has fallen to sub 5.5% currently. Greece’s inflation flared up to 7.2% but benefiting from Eurozone membership it came down to 3.3%. IMF and the World Bank forecast that India’s GDP will triple this decade from $2.2 trillion to $7.2 trillion.

S&P mentions in its sovereign rating criteria that a “diversified, resilient, and adaptable economy ultimately boosts its debt-bearing capacity”. That sounds right, but then its ratings remain a mystery concerning India. The nominal GDP growth of India is not only higher than Greece but is more stable. Nor has it ever defaulted. A casual observer may be forgiven for concluding that CRAs are embarrassed to give Greece anything but an investment grade rating, while India, which the MSCI emerging markets index recognises as the top destination pipping even China, South Korea and Taiwan, is set a much higher bar.

Let us return to address the three questions at the start of the article in respect of CRAs.

Is their rating defendable? Has it provided meaningful predictive power?

Between 2005 and 2008, the big three CRAs had more upgrades than downgrades. Post 2008, as governments struggled to repay debt and the market penalised them, the sovereign downgrades increased. The rating behaviour was not just pro-cyclical but also lacked meaningful predictive power. Such rating behaviour was criticised by regulators such as the European Security Market Authority and the European Banking Authority.

Is their methodology objective?

For the base model, CRAs tend to run linear regressions on past assigned ratings against a few select macroeconomic variables. These assume that past ratings of the CRAs are accurate. Further, the CRAs never disclosed statistical validation of how their selected macroeconomic variables predict sovereign defaults. A case in point is per capita income. India’s per capita income is $2,400 while for Greece it is $23,000. PPP-based per capita income as per World Bank is $10,100 and $41,100. Can this be empirically verified? Why not the PPP adjusted vs unadjusted? India’s interest rate tends to remain 2 to 2.5 percentage points below nominal GDP growth or never in any risk of a debt trap. Further, India’s government debt is rupee-denominated, unlike Greece which has debt in international currency. The government debt-to-GDP ratio of India is 83% while for Greece it is a staggering 160%.

Then comes the future macro projections. Angus Deaton, a Nobel Prize-winning economist, has said that long-term economic growth remains a mystery because we know more about what impedes it than what causes it. Advanced risk management practitioners use scenarios. However, CRAs continue to use projections. Despite their celebration of transparency in the nations they rate, their projection models are undisclosed and not subject to academic or professional review.

Can their ratings be accused of any bias?

Finally, CRAs add qualitative overlays to assign sovereign ratings. They use surveys of others—for example, the World Bank’s Ease of Doing Business, which the bank discontinued for governance reasons. They continue to use various perception surveys about a country’s political stability or governance quality to make their assessment.

These are often provided by institutions whose index estimation process is neither audited nor transparent. These surveys always raise issues of bias, and it is entirely unclear whether CRAs have any competence to assess factors such as political stability or institutional strength. Imagine if the attack post elections in 2020 on Capitol Hill had happened in India! The qualitative overlays they use reinforce bias rather than demonstrate any deep expertise on these contested assessments.

Sovereign credit ratings are a public good. They must be assigned in an unbiased, transparent, and consistent manner. The current regime is deficit in all three. The current model has outlived its utility and is not in step with today’s global economic realities. Marx’s words in a different context seem surprisingly apt—“the tradition of all dead generations weighs like a nightmare on the brains of the living.” The entire Global South should challenge the CRA regime, and India, as its spokesperson, must lead the charge.

Janmejaya Sinha, chairman India, Boston Consulting Group (BCG) and Deep Narayan Mukherjee is partner, BCG.The views expressed are personal