India on Friday questioned the rating methodology of Moody’s as it pitched for an upgrade, but high government debt could act as a deterrent.

Moody’s rates India at the lowest investment grade of “Baa3” with a “stable” outlook, similar to those assigned by S&P and Fitch at ‘BBB-’.

Global rating agencies take into account parameters such as the economic growth rate, inflation, general government debt and short-term external debt as a percentage of GDP, and political stability as some of the key considerations.

India has a relativelyhigh level of general government debt, estimated at around 81.8 per cent of GDP for 2022-23, compared with the Baa-rated median of around 56 per cent.

On Friday, senior government officials met the rating agency representatives.

“We have questioned them ... how can Indonesia have a better rating than India,” an Indian government official, who did not want to be named, told reporters after attending the meeting held between Moody’s executives and finance ministry officials in New Delhi.

Moody’s rates Indonesia’s sovereign credit rating at Baa2, a notch above India’s.

Earlier this year, India met all three global rating agencies and pitched for an upgrade, saying its economic metrics have improved considerably since the pandemic.

India’s growth in the last fiscal year ended on March 31 was 7.2 per cent, one of the highest among big economies, while it aims to cut its fiscal deficit to 5.9 per cent of gross domestic product by the end of the current fiscal year.

CPI inflation moderated to 4.25 per cent in May, a 25-month low, falling well within the RBI tolerance band of 2-6 per cent.

The Asian economy expects to grow between 6 per cent and 6.8 per cent in the current fiscal year, according to the government.

Bugbear

Moody’s Investors Service, however, said the key determinant of India’s fiscal strength and credit profile will be debt affordability and projected a downward trend for the debt burden.

“As long as nominal GDP growth holds, India’s debt burden will be stable or decline slightly,” Moody’s said.

“As in the past, the key determinant of fiscal strength and the credit profile will be debt affordability and in particular the proportion of revenue absorbed by interest payments,” Moody’s said.

India also has low debt affordability, in terms of general government interest payments as a percentage of revenues, which for India is estimated at 26 per cent for 2022-23, compared with the Baa median of around 8.4 per cent.

With inputs from Reuters