Inconsistent rating agencies draw CEA flak
Chief economic adviser Arvind Subramanian (in pic) on Thursday slammed global rating agencies, saying they are following different standards for rating India and China. This comes after Fitch recently stuck to its guns, ignoring the finance ministry’s strong sales pitch for rating upgrade.
“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 here. “In other words, the ratings agencies have been inconsistent in their treatment of China and India. Given this record -- what we call Poor Standards -- my question is: why do we take these rating analysts seriously at all,” he queried.
Citing the example of the sub-prime crisis, he said questions were raised about their role in certifying as AAA bundles of mortgage-backed securities that had toxic underlying assets in the US financial crisis of 2008.
Similarly, their value has been questioned in light of their failure to provide warnings in advance of financial crises, he said.
Delivering the VKRV Rao Memorial Lecture, he said on the domestic side, there is a clear relationship between expert analysis and official decisions. “Before policy decisions, the expert analysis is often illuminating. But once the decisions are taken, it is striking how the tune and tone of the analysis changes. Analysts fall over backwards to rationalise the official decision,” Subramanian said.
Last week, economic affairs Secretary Shaktikanta Das had also expressed disappointment, saying global rating agencies were far detached from ground realities and must introspect as the reforms initiated certainly warranted an upgrade.
Last year too, the finance ministry had made a strong sale pitch for rating upgrade in interaction with a team from Moody’s US office, which visited the North Block ahead of its annual rating assignment. However, the team was not impressed.
The rating agency cited the government’s high debt and a narrow revenue base as key constraints, which it said, would not improve overnight.