Sovereign ratings
How global agencies grade a government as a borrower, what they look at, and where India and the US stand
Ratings as known on 16 October 2026; Budget figures for 2026-27
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what India's credit rating is and who gives it. Most people know there is 'a rating' but not that several agencies rate India, on two different-looking scales. By the end they should be able to read any rating headline correctly.
A sovereign rating is an agency's opinion of how likely a government is to pay its lenders in full, on time.
It grades the government as a borrower. It is not a score for the economy, its companies or its stock market, and it is an opinion, not a guarantee.
Trainer notes
Agencies describe their ratings as relative rankings of credit risk, not as a precise probability of default. Keep the word 'opinion' in front of the class throughout.
Reading the scale
S&P and Fitch write AAA, AA, A, BBB and so on; Moody's writes Aaa, Aa, A, Baa. The steps line up.
| Band | Written as | What the band means |
|---|---|---|
| Highest | AAA / Aaa | Highest quality. |
| High | AA+, AA, AA- / Aa1, Aa2, Aa3 | High quality. |
| Strong | A+, A, A- / A1, A2, A3 | Strong capacity to pay. |
| Adequate | BBB+, BBB, BBB- / Baa1, Baa2, Baa3 | Adequate capacity to pay. BBB- (Baa3) is the lowest investment grade. |
| Speculative | BB+ (Ba1) and below, down to default | Below investment grade: from ongoing uncertainty, through high risk, to default. |
Source: Economic Survey 2020-21, Vol. 1, Chapter 3, Box 1 (rating scale comparison, citing the IMF), Ministry of Finance, Jan 2021.
Trainer notes
Each step is called a notch. The investment-grade line sits between BBB- and BB+ (Baa3 and Ba1). The words in the right-hand column are the Economic Survey's summary of each band, not any single agency's official definition.
Four terms to know
Investment grade
BBB- (Baa3) and above. Below that is speculative grade, also called sub-investment grade.
Notch
One step on the scale. BBB- to BBB is one notch up. From AA+ down to BBB is seven notches.
Outlook
The agency's view of the likely direction of the rating over the medium term: positive, stable, negative or developing.
Currency
Debt in the government's own currency and debt in foreign currency are rated separately. The two can differ.
Sources: Economic Survey 2020-21, Vol. 1, Ch. 3; Moody's methodology presentation, 7 Sep 2023 (outlooks).
Trainer notes
An agency can also put a rating 'on review' or 'on watch' when a change may come soon. Moody's rates India Baa3 for both local- and foreign-currency issuer ratings. A rating change can follow a change in outlook, but need not.
What agencies look at
Moody's scores four factors. Its scorecard is a starting point; a committee decides the rating.
| Factor | The question | Examples of measures |
|---|---|---|
| Economic strength | How strong is the economy, and can it absorb shocks? | Growth and how much it swings, size of the economy, income per person. |
| Institutions and governance | How robust are institutions, and how predictable are policies? | Quality of institutions and how well policy works. Both are judged, not just measured. |
| Fiscal strength | How heavy is the debt against what the government can raise? | Debt to GDP and to revenue. Interest to GDP and to revenue. |
| Event risk | Could a sudden event strain public finances? | Political, government liquidity, banking-sector and external risks. |
Source: Moody's sovereign methodology presentation, 7 Sep 2023, published by Latvia's Ministry of Finance.
Trainer notes
S&P's criteria group the same ground into five areas: institutions, economy, external position, public finances and monetary flexibility. The point for the class is that judgement on institutions and politics sits alongside the numbers, which is why agencies can differ on the same country.
Debt burden and debt affordability
AN INVENTED COUNTRY
For every ₹100 of its GDP:
Government debt is ₹80. Government revenue is ₹20 a year.
The average interest rate on its debt is 7%. All figures are assumed.
- Debt to GDP = 80 ÷ 100 = 80%. This is the figure most often quoted.
- Debt to revenue = 80 ÷ 20 = 4. The debt equals four years of the government's revenue.
- Interest = 7% × 80 = 5.6 per 100 of GDP. Interest to revenue = 5.6 ÷ 20 = 28%.
- If revenue were ₹28 instead of ₹20, the same interest would take 5.6 ÷ 28 = 20% of revenue.
Result: The same debt weighs more on a government that collects less revenue. Agencies look at both.
Illustration with an invented country and assumed figures. Not a description of any real government.
Trainer notes
Interest to revenue is what agencies call debt affordability: the share of each rupee of revenue that goes on interest before anything else is paid for. Moody's named India's 'weak debt affordability' as a constraint when it affirmed India's rating in September 2025.
Where India stands
India's long-term ratings from S&P, Moody's and Fitch, and one measure they watch.
- S&P
- BBBRaised from BBB- on 14 Aug 2025. Affirmed, stable outlook, Aug 2026.
- MOODY'S
- Baa3Since June 2020. Affirmed 29 Sep 2025, stable outlook.
- FITCH
- BBB-Since Aug 2006. Affirmed 11 Aug 2026, stable outlook.
- INTEREST ÷ REVENUE
- 39.7%Centre's interest payments ÷ revenue receipts, Budget 2026-27.
Sources: Ministry of Finance (PIB), 14 Aug 2025, 1 Sep 2026; Moody's, 29 Sep 2025; All India Radio and IANS, 11 Aug 2026; Economic Survey 2020-21; Budget at a Glance 2026-27.
Trainer notes
Interest of ₹14,03,972 crore ÷ revenue receipts of ₹35,33,150 crore = 39.7% (Budget estimate 2026-27; our arithmetic). Press reports say Moody's issued a periodic review on 18 September 2026 that left its rating and outlook unchanged; a periodic review is not a rating action. State the ratings and stop: we do not predict the next rating move.
How India got here
| When | What changed |
|---|---|
| January 2004 | Moody's raised India to Baa3, investment grade. |
| August 2006 | Fitch raised India to BBB-, investment grade. |
| January 2007 | S&P raised India to BBB-, investment grade. |
| Nov 2017; June 2020 | Moody's raised India to Baa2 in 2017, then lowered it back to Baa3 in 2020. |
| August 2025 | S&P raised India to BBB, its first upgrade of India in 18 years. |
Sources: Economic Survey 2020-21, Vol. 1, Ch. 3, Table 1; Ministry of Finance (PIB) release, 14 Aug 2025.
Trainer notes
The Economic Survey says India was speculative grade for most of the 1990s and until the mid-2000s (investment grade from Moody's in 2004, Fitch in 2006, S&P in 2007). Other agencies also rate India: the Ministry of Finance noted two more upgrades, to BBB and BBB+, in 2025.
Why a rating matters
Who can buy
Many institutional investors can hold only investment-grade debt. Crossing the BBB-/BB+ line can change who is able to buy a government's bonds.
The sovereign ceiling
When a government is downgraded, banks and companies in that country may be downgraded too, which can raise what they pay to borrow abroad.
India's borrowing
The Centre budgets ₹15,385 crore of net external debt in 2026-27, about 0.9% of its ₹16,95,768 crore fiscal deficit. Most of the rest is raised in India.
Sources: Economic Survey 2020-21, Vol. 1, Ch. 3 (quoting published research); Budget at a Glance 2026-27, sources of financing the fiscal deficit.
Trainer notes
The first two cards come from research quoted in the Economic Survey; they describe what can happen, not what will. Because the Centre borrows mainly in rupees from domestic lenders, a global rating change speaks mainly to foreign investors and to Indian borrowers who raise money abroad. 15,385 ÷ 16,95,768 = 0.91% is our arithmetic.
If you learnt this from older material
What older decks say
- The US is rated AAA.
- India is rated BBB-, the lowest investment grade.
- One agency's five criteria explain how countries are rated.
What holds now
- None of S&P, Moody's, Fitch rates the US at the top. Cuts: Aug 2011, Aug 2023, May 2025.
- Since Aug 2025 S&P rates India BBB; Moody's and Fitch keep it at the lowest investment grade.
- Each agency publishes its own framework. Check whose rating is being quoted.
Take-away: The US is now AA+ with S&P and Fitch and Aa1 with Moody's, each one notch below the top.
Sources: US CRS, R48209, 4 Oct 2024; Moody's, 16 May 2025; Fortune, 27 Jun 2026; Reuters, 14 Aug 2026; PIB, 14 Aug 2025.
Trainer notes
Older material quoted India at BBB- with a stable outlook and the US at AAA, from August 2010. Two agencies affirmed the US at AA+ in June and August 2026, according to press reports; one cited the dollar's status as the world's leading reserve currency.
Four things people get wrong
Misconception'A rating is a verdict on the economy.'
What is trueIt grades the government as a borrower. Growth helps, but debt, revenue and institutions count as much.
Misconception'A downgrade sinks Indian markets.'
What is trueEconomic Survey 2020-21: past rating changes for India had no or weak correlation with Sensex returns, the rupee and G-sec yields.
Misconception'All agencies give the same rating.'
What is trueThey need not. In October 2026 S&P rated India BBB, while Moody's and Fitch rated it a notch lower, at Baa3 and BBB-.
Misconception'An upgrade means bond funds will gain.'
What is trueA rating is one input among many for bond prices. We describe rating actions; we do not draw conclusions for any fund.
Trainer notes
The Economic Survey's finding covers rating changes from 1998 to 2018 and is the Government's own analysis; it does not mean ratings never move markets. Trustner and its people are mutual fund distributors: we explain rating actions, we do not predict them or act on them for clients.
Check yourself
Question 1: Which rating is the lowest investment grade on each scale, and what is the step just below it called?
Answer: BBB- on the AAA-to-D scale and Baa3 on the Aaa-to-C scale. The next step down, BB+ (Ba1), is speculative grade, also called sub-investment grade.Question 2: An invented government has debt of 60 and revenue of 15 for every 100 of GDP, and pays 8% interest on its debt. What share of its revenue goes on interest?
Answer: Interest = 8% × 60 = 4.8. Interest to revenue = 4.8 ÷ 15 = 32%.Question 3: A client says one agency has just changed India's rating and asks whether to sell a bond fund. What do we say?
Answer: Explain what the rating measures, quote the action, its date and the agency's stated reasons, and stop. We do not tell a client to buy or sell because of a rating action.
Trainer notes
Q2 uses invented figures; check the arithmetic aloud. Q3 is the one to rehearse: it is the conversation an RM will actually have.
Sources and disclaimer
Sources for the figures in this explainer
- India, S&P: Ministry of Finance (PIB) release, 14 Aug 2025; PIB factsheet on Q1 2026-27 GDP, 1 Sep 2026 (affirmation, Aug 2026).
- India, Moody's and Fitch: Moody's rating action, 29 Sep 2025; Fitch affirmation as reported by All India Radio (newsonair.gov.in), 11 Aug 2026.
- Rating scales, India's rating history and market correlations: Economic Survey 2020-21, Vol. 1, Chapter 3, Ministry of Finance, Jan 2021.
- Rating factors and outlooks: Moody's sovereign methodology presentation, 7 Sep 2023, published by Latvia's Ministry of Finance.
- US: CRS report R48209, 4 Oct 2024 (2011, 2023 cuts); Moody's, 16 May 2025; Fortune, 27 Jun 2026; Reuters, 14 Aug 2026.
- Interest, revenue receipts and financing of the deficit: Budget at a Glance 2026-27, Ministry of Finance, 1 Feb 2026.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).