Making a case for an upgrade in Indiaâs sovereign rating, former New Development Bank president K.V. Kamath recently said the new development finance institution (DFI) cleared by the Union Cabinet must be careful about preventing âexcessive relianceâ on foreign funds.
K.v. Kamath:
- With all the efforts that the government is making, the sovereign rating itself would need to move up.
- I donât think that they can hold Indiaâs rating where it is; wherever you look at, this rating is misplaced by at least a notch, if not more.
- The Economic Survey 2020-21 had also argued Indiaâs 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),â it had noted, adding that it also damages foreign portfolio investment flows.
- Speaking at a programme titled âShaping Development Finance Institutions: New Opportunities and Policy Optionsâ 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.
- âThe institution will have to carefully assess if you are going to use external borrowing for rupee needs, what the total cost is and if itâs still attractive to a borrower.â
- He stressed even global development banksâ soft loans were ânot really softâ and âexcessive reliance on international fundsâ would not be prudent.
SOURCE: PIB