Goa: A day before the 8th Brics summit gets underway, China has communicated that it is not in favour of a proposed credit rating agency of the five-member grouping, a move spearheaded by India.

“China is now saying a government-backed credit rating agency will not have any credibility and Brics should stay away from it. But the item is on the agenda of discussion of Brics leaders," a finance ministry official said, speaking on condition of anonymity.

Economic affairs secretary Shaktikanta Das, speaking on the sidelines of a Brics conference in Goa, said the idea is still at the discussion stage. “The existing credit rating agencies from developed countries are behind the curve on developments in emerging economies. There is a need for a new rating agency sponsored by the Brics countries or their institutions located in Brics countries. But the rating agency has to be autonomous of the governments and should maintain arm’s-length distance from them," he added.

The Brics grouping of the five largest emerging economies—Brazil, Russia, India, China and South Africa—is planning to challenge the existing credit-rating system through a new agency where the prospective investor will pay for rating an issuer of a debt instrument, Mint reported on 26 September

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Under the present pricing model of rating agencies, the company or institution issuing bonds pays the rating agency to be rated, known as an issuer-pays model. The new Brics rating agency will instead adopt an investor-pays model.

In preparation for the Brics rating agency, Exim Bank prepared a concept paper and rating agency Crisil Ltd had conducted a study for India. Later, the concept paper was shared with the other four members of the bloc for their views.

India has long held that the methodology of the three major rating agencies—S&P Global Ratings, Fitch Ratings and Moody’s Investors Service —is biased against developing countries, reflected in their poor rating of these economies. Currently, all the three global rating agencies rank India at the lowest investment grade, which is just a notch above junk status.