Explained | What is a ratings agency and why do they matter?

Rating agencies help investors gauge if they would get a return on their investment.

Finance Secretary T.V. Somanathan on Tuesday accused ratings agencies of “double standards” when assessing emerging markets and developing economies. He was responding to ratings agencies’ terming the country as the most indebted emerging market and the claim that the latest budget did not provide clarity on fiscal consolidation plans.

Fitch, a rating agency, had stated that higher deficits and continued lack of clarity on medium-term consolidation plans in the recent Union Budget was its rationale for projecting of a downward trajectory in the country’s debt/GDP. The report concluded saying, “The government has little fiscal headroom at its current level to respond to possible shocks to growth.”