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Business News/ Politics / Policy/  Rating firms favouring China over India: CEA
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Rating firms favouring China over India: CEA

Rating not changed despite improvement in fundamentals, says Arvind Subramanian

Arvind Subramanian, chief economic adviser in the finance ministry. Photo: Pradeep Gaur/MintPremium
Arvind Subramanian, chief economic adviser in the finance ministry. Photo: Pradeep Gaur/Mint

New Delhi: Firing a fresh salvo against credit rating companies, chief economic adviser in the finance ministry Arvind Subramanian on Thursday said such 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."

Global agency Fitch Ratings last week 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 “stable" outlook for the country’s ratings.

Asked whether he is disappointed over Fitch Ratings earlier this week not upgrading India’s sovereign credit rating, economic affairs secretary Shaktikanta Das said with all structural reforms in the last three years and India growing at a 7%-plus rate, if the rating agencies do not give an upgrade to India, then they are probably far detached from ground realities. “So it is for them to really introspect," he added.

The State Bank of India (SBI) in a report on India’s sovereign rating 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 India’s 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 and provident funds (accounting for around 85%)," it said.

With the fiscal discipline committee headed by N.K. Singh emphasizing on attaining 60% debt-to-GDP ratio by 2023, the rating agencies will get a reason to maintain the status quo, despite the other visible advances which India has made, the report said. “We may have just played into the hands of rating agencies who maintain India has a high debt/GDP ratio. The rating agencies wanted an excuse, and we may have unintentionally provided them with one," it added.

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Published: 12 May 2017, 12:44 AM IST
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