Credit rating agencies’ methodologies fail to reflect India’s growth, fiscal strength: FM

FM Nirmala Sitharaman

India renewed its call for reforms in the methodologies adopted by international credit rating agencies, arguing that they fail to adequately reflect the structural strengths, growth prospects and fiscal prudence of emerging markets and developing economies (EMDEs). Speaking at the Leadership Summit of the International Business Forum on June 30, 2025, held alongside the Fourth International Conference on Financing for Development (FFD4) in Sevilla, Spain, Finance Minister Nirmala Sitharaman said that rating practices continue to understate the fundamentals of countries like India, thereby raising their cost of capital and restricting private investment flows.

“International credit rating methodologies must evolve to better reflect the structural strengths and long-term resilience of EMDEs. Current sovereign ratings often understate key fundamentals. India, for example, with a sustained high growth trajectory and sound fiscal management, its sovereign rating does not fully reflect its macroeconomic stability,” Sitharaman said.
The Finance Minister emphasised that reforming rating methodologies would not only enhance fairness but also help reduce financing costs and unlock significantly larger volumes of private capital for development priorities. She noted that despite a growing consensus on the need for change, actual financial flows to EMDEs have struggled to gain momentum.

“This underscores the need for early, structured engagement between MDBs and credit rating agencies to recalibrate risk assessments and unlock sustainable capital at scale,” she added, referring to Multilateral Development Banks (MDBs) and their role in bridging financing gaps.

Sitharaman pointed out that MDBs and Development Finance Institutions (DFIs) must play a stronger enabling role, particularly in the early stages of sustainable development projects that lack commercial viability. “MDBs and DFIs are uniquely positioned to bridge this gap – through concessional finance, guarantees, credit enhancements, and project preparation support – thereby improving risk-return profiles and attracting private capital,” she said.

Despite recent progress in private capital mobilisation globally, the Finance Minister highlighted that the flow of such funds remains well below what is required. She flagged that low- and middle-income countries receive a disproportionately small share of private capital, which makes it imperative to address investment barriers and better align financial flows with development priorities.

“Key challenges for EMDEs include the high cost of capital, a shortage of bankable projects, regulatory and institutional constraints, limited local capacity, and high perceptions of risk—both country-specific and currency-related,” Sitharaman said.