New Delhi: Even as Prime Minister Narendra Modi pushed for early creation of the proposed BRICS rating agency, there seems little agreement on the issue among the five largest emerging market member countries—Brazil, Russia, India, China and South Africa—as the Xiamen declaration remains silent on the proposal.

“Last year we discussed pooling our efforts to create a BRICS rating agency. An expert group has since been studying the viability of such an agency. I would urge that the road map for its creation should be finalized at the earliest," Modi said in his intervention at the plenary session of the 9th BRICS Summit hosted by China.

China had opposed India’s proposal, holding that a government-backed credit rating agency will not have any credibility and BRICS should stay away from it. However, the proposal was mentioned at the 8th BRICS Summit in Goa last year—“We welcome experts exploring the possibility of setting up an independent BRICS rating agency based on market-oriented principles, in order to further strengthen the global governance architecture."

Exim Bank had prepared a concept paper and rating agency Crisil Ltd had conducted a study for India ahead of the Goa BRICS summit. India has long held that the methodology of the existing three major rating agencies—S&P Global Ratings, Fitch Ratings and Moody’s Investors Service—is biased against developing countries, reflected in the poor ratings of these economies. Currently, all three global rating agencies rank India at the lowest investment grade, which is just a notch above junk status.

India maintained that just as the BRICS New Development Bank (NDB) contributes new financing to the existing financing available through multilateral institutions, the new rating agency will also contribute to existing knowledge of rating systems.

Chief economic adviser in the finance ministry Arvind Subramanian said in May this year that rating agencies have been inconsistent in their treatment of China and India, favouring the former. “In recent years, rating agencies have maintained India’s BBB-rating, notwithstanding clear improvements in our economic fundamentals (such as inflation, growth, and current account performance). At the same time, China’s rating has actually been upgraded to AA-, even though its fundamentals have deteriorated," he said delivering the sixth VKRV Rao memorial lecture in Bengaluru.

Calling it “one of the most egregious examples of compromised analysis", Subramanian said often ratings downgrades have occurred post facto, “a case of closing the stable doors after the horses have bolted".

Fitch Ratings in May said it has retained the “BBB-" sovereign rating—the lowest investment grade—on India holding that weak public finances continue to constrain India’s ratings. The agency has also retained a “stable" outlook for the country’s ratings.

The State Bank of India (SBI) in a report on India’s sovereign rating released earlier this year said the country has been languishing at the bottom of the investment grade ladder in the ratings universe with a net upgrade of only once in the last 25 years.

SBI said one of the common arguments made by rating agencies for not upgrading India’s rating is its high debt to GDP ratio at 69.5%. “It is the composition of the government debt to GDP per se that matters for any discussion on debt solvency. For India, public debt is mostly internal. As a conscious strategy, issuance of external debt (denominated in foreign currency) is kept very low in India. Overseas investors account for only 4% in the total government bonds and the majority of the investment comes from scheduled commercial banks, insurance companies, RBI (Reserve Bank of India) and provident funds (accounting for around 85%)," it said.

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