Moody's upgrade should start a long-overdue correction. Credibility of the big credit rating agencies is under threat.

The upgrade of rupee-denominated long-term Indian government debt by the rating agency Moody's on Wednesday should not be cause for excitement.

Moody's itself recognised that it was just a correction in the bias inherent in its rating of foreign currency-denominated Indian government debt as more secure than rupee-denominated debt. Yet this should be seen only as the beginning of a much-needed correction.

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It is not just that Moody's is the only agency so far to have made this call. It is also that, even at this revised level -- which makes rupee-denominated debt 'investment-grade' -- India's economy may continue to be rated at a level that does not accurately reflect its fundamentals.

The best way to see this is to examine ratings given to other countries' sovereign debt, and to compare indicators for their economies with those for India's.

The most worrying outlier is surely the United Kingdom, which continues to be rated Aaa/stable by Moody's, the agency's highest possible rating.

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Yet its giant financial sector is in trouble, and it will likely see a significant slowdown in growth and revenue as the Conservative-Liberal Democrat coalition enforces harsh austerity measures.

And what do the numbers show? A debt-to-GDP ratio 12 percentage points higher than India's and a budget deficit that is at 10.3 per cent of GDP, where India's is still below 5 per cent.

Indebted, crisis-hit southern European countries, meanwhile, continue to enjoy the rating agencies' patronage. Spain's budget deficit is 9.3 per cent, but its government debt is still Aa2, many rungs above India's debt.

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As is Italy's, with a debt-to-GDP ratio of 120 per cent. Even India's peers in the BRICS nations are rated higher, in spite of problematic numbers.

South Africa is a comfortable A3, although its current account deficit is a high and vulnerable 3.8 per cent of GDP; India's is at 2.7 per cent of GDP -- and yet the agencies will claim they are worried about it.

Brazil expects economic growth barely beyond 3 per cent, a fall of 4 per cent. Its economy, heavily dependent on exports to Europe, is singularly vulnerable to the Eurozone's instability.

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Yet its government paper is rated by Moody's at Baa2, a step above India's new rating.

Seen in this context, it becomes clear that the revised Moody's rating should only be the beginning of a process of rationalisation.

This process should not be limited to Moody's, but should extend to the four other internationally-recognised credit rating agencies.

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The upward revision should definitely not be taken to mean that India's government is doing something right, or that there are grounds for optimism about policy.

By many tellings, the greatest structural flaws that led to the global financial crisis of 2008 were revealed in the errors of those supposedly reporting on the world economy -- the credit rating agencies.

They should be thinking, hard, about how to recover credibility. Perpetually under-rating some economies and over-rating others when the whole world can do the maths and figure out how they're wrong is unlikely to help them recover ground.