What is Credit Rating?

You might have many a times come across to the news like: Moody reducing the credit ration of India. Standards and Poor is thinking to reduce the rating seeing high fiscal deficit. And many more.

But did you cared to know why India gets shaken when they speak so and Indian government take it so seriously. Well there are many reasons for it. To explain it let us take an example.

If you have Rs. 1 crore with you and you want to lend it to someone. You have 2 persons in the society who are willing to take loan from you. You enquired about both the persons in the market and you came to know that Person A returns his loan more easily and in lesser time as compared to Person B. Then you will surely go for Person A assuming that both the persons pay same interest to you.

The same is the story at the international level. Since India is still a developing country and requires huge money now and then for investment in infrastructure, health facilities, educational facilities and many more services. So for all these it requires huge amount of loans. Some time it takes loan directly from the other countries and sometimes it sell bonds in international markets. In both the circumstances if the credit rating of India will be lower then, India will get very few countries willing to give money to India. In simple terms Credit rating means the probability or chances that your money is safe and will be returned fully by the borrower.

So India government is always worried about the credit ratings of the country by these international credit rating organizations like Moody and Standard and Poor.

The credit rating of a country becomes worse when the Inflation rates, Fiscal Deficit and Current account deficit is high. Because all these conditions are signs of a paralyzed economy. So Indian government is constantly in work to control all the above factors.

So the next time you see such news I am sure you will be more concerned now to read it.