Tag: Economic Survey 2020-21

Making a case for an upgrade in India’s sovereign rating, former New Development Bank president K.V. Kamath on Wednesday said the new development finance institution (DFI) cleared by the Union Cabinet must be careful about preventing ‘excessive reliance’ on foreign funds.

“With all the efforts that the government is making, I would think that the sovereign rating itself would need to move up. I don’t think that they can hold India’s rating where it is; wherever you look at, this rating is misplaced by at least a notch, if not more,” Mr. Kamath said. The Economic Survey 2020-21 had also argued India’s sovereign ratings did not reflect its fundamentals. “Never in the history of sovereign credit ratings has the fifth-largest economy in the world been rated at the lowest rung of the investment-grade (BBB-/Baa3),” it had noted, adding that it also damages foreign portfolio investment flows.

Speaking at a programme titled ‘Shaping Development Finance Institutions: New Opportunities and Policy Options’ hosted by the India International Centre and RIS, Mr. Kamath said the new DFI should be able to borrow from abroad at sovereign rates but called for careful consideration before foreign capital was pursued.

“The institution will have to carefully assess if you are going to use external borrowing for rupee needs, what the total cost is and if it’s still attractive to a borrower.”

He stressed even global development banks’ soft loans were ‘not really soft’ and ‘excessive reliance on international funds’ would not be prudent.