Survey exhorts rating agencies to be more transparent

Global ratings agencies have the lowest investment-grade rating on India, which is just above the junk status.

New Delhi: India’s sovereign credit ratings do not reflect the economy’s fundamentals, the Economic Survey said on Friday and nudged the global agencies to become more transparent and less subjective in their ratings.

The Economic Survey 2020-21, tabled in Parliament, said that sovereign credit ratings methodology must be amended to reflect economies’ ability and willingness to pay their debt obligations, and suggested that developing economies must come together to address this bias and subjectivity inherent in sovereign credit ratings methodology.

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“Never in the history of sovereign credit ratings has the fifth largest economy in the world been rated as the lowest rung of the investment-grade (BBB-/Baa3). While sovereign credit ratings do not reflect the Indian economy’s fundamentals, noisy, opaque and biased credit ratings damage FPI flows,” the survey said.

“Past episodes of rating changes have no or weak correlation with macroeconomic indicators… India’s fiscal policy, therefore, must not remain beholden to a noisy/biased measure of India’s fundamentals and should instead reflect Gurudev Rabindranath Thakur’s sentiment of a mind without fear,” said the survey authored by Chief Economic Adviser Krishnamurthy Subramanian.

Stating that there is a bias against emerging giants in sovereign credit ratings, the survey said India has been an outlier in terms of GDP growth rate, inflation, general government debt, political stability, rule of law, control of corruption, investor protection, ease of doing business, short-term external debt (as per cent of reserves), reserve adequacy ratio and sovereign default history, for the last decade.

Global ratings agencies have the lowest investment-grade rating on India, which is just above the junk status.In June, Fitch Ratings revised India’s outlook to ‘negative’ from ‘stable’ and affirmed the rating at ‘BBB-‘, stating that the coronavirus pandemic has significantly weakened the country’s growth prospects for the year and exposed the challenges associated with a high public-debt burden.

Moody’s Investors Service had downgraded India’s sovereign rating to ‘Baa3’ from ‘Baa2’, saying there will be challenges in the implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.S&P Global Ratings retained the ‘BBB-‘ rating for India for the 13th year in a row in June last year.