India’s economic administration continues to unleash heavy attack on the inconsistent rating practices followed by global agencies. Economic Affairs Secretary Shaktikanta Das told agencies that rating agencies are several steps behind from reality. They are missing something which they only can best explain.
The Economic Survey 2017 also questioned the rating history and credibility of global agencies. Despite India continues to be one of the bright spot with stability, rating agencies failed to upgrade the country’s ratings in recent years. At the same time, their rating of several other countries with low macroeconomic conditions continues to be far good.
The survey singled out rating agencies AAA rating of the US toxic assets and questions the methodology of Standard and Poor specifically in a boxed analysis titled ‘Poor Standards? The Rating Agencies, China and India.’
Several agencies and officials feels that what the rating agencies find about India can’t be explained by their methodology. Industry observers and financial sector analysts feels that rating agencies always sings and dances for somebody. An improved rating for India will led to reduced borrowing costs (interest) for Indian corporate and this means that West oriented international banks can get only reduced interest income from the country.
India relies heavily on External Commercial Borrowings unlike other Emerging Markets.
India was last upgraded by rating agencies almost a decade ago. Fitch upgraded India’s sovereign rating to BBB in 2006 while S&P in 2007.
“Look at our GDP, compare with other countries’ GDP. Look at our macroeconomic numbers, inflation, current account deficit, compare with other countries. Now I really do not understand, I think rating companies are missing out on something which only they can explain,” – Mr Das highlighted.
Part of the reasons for the rating agencies following dubious methodologies to serve the interest of Western Financial Institutions lies in lack of government pressure exerted on them. Now, they are under scrutiny after being caught red handed. More than that, they have to give sound explanation about how they produce such strange verdict given the methodology.
The Western Financial Institutions though seemingly follows sound methodologies and objectivity, are poor at the application levels. This is what is found during the global financial crisis period.