India’s Chief Economic Advisor trains his guns on global rating agencies

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India’s Chief Economic Advisor trains his guns on global rating agencies
India's Chief Economic Advisor Krishnamurthy SubramanianBCCL

  • India has called out S&P, Moody’s and Fitch credit ratings for being biased against its economy in the Economic Survey 2020-21.
  • India’s current rating by S&P, Moody’s and Fitch is a line in the sand away from uncertainty — the lowest rating in the investment grade of ‘adequate payment capacity’.
  • Any further downgrade would put India in the category of ‘likely to fulfill obligations, ongoing uncertainty’.
It’s no secret that the COVID-19 pandemic has not been kind to the Indian economy, nor has it been easy for other countries around the world. However, India’s latest Economic Survey has dedicated an entire chapter on sovereign credit rating agencies being biased against the Indian market.

"Never in the history of sovereign credit ratings has the 5th largest economy been rated as the lowest rung of investment-grade (BBB -). India’s fiscal policy must not remain beholden to a noisy, biased measure of India’s fundamentals,” said the survey.

India’s rating as per three major credit rating agencies:
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AgencyCurrent ratingWhat it means
S&PBBB-Last rung in ‘adequate payment capacity’ grade of investment rating
Moody’sBaa3
FitchBBB-
Source: Economic Survey — compiled from S&P Global, Fitch and Moody’s, IMF

India’s credit rating and what happens with it gets downgraded further
The point of credit ratings is to quantify issuers’ ability to meet debt obligations — in this case, the ability of the Indian government to meet its debt obligations.

When they are favourable, it can facilitate countries to access global capital markets and foreign investment. However, when downgrades occur, investors are dissuaded from making bigger investments.

India’s current rating by S&P, Moody’s and Fitch is a line in the sand away from uncertainty — the lowest rating in the investment grade. All three imply ‘adequate payment capacity’.
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However, any further downgrade would put India in the category of ‘likely to fulfill obligations, ongoing uncertainty’.

“India’s forexchange reserves can cover an additional 2.8 standard deviation negative event. It is imperative that sovereign credit rating methodology be made more transparent, less subjective,” said the Economic Survey.

The government’s GST collection may only be ₹11,000 crore short of meeting its target, according to the State Bank of India’s (SBI) Ecowrap report. This means the government has more money in its pocket to allocate for the budget set to be announced on February 1.
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Nilesh Shah, the managing director of the Kotak Mahindra Asset Management Fund, pointed that in addition to the jump in GST collections, data from Google’s mobility index and RBI’s foreign exchange reserves combined show’s that India’s economy is on the road to recovery.

“Put all of this data together, we are seeing a month-on-month improvement in the economy,” Shah, who is also a part-time mber of the Prime Minister Modi’s Economic Advisory Council, told Business Insider in an interview.

This is similar to the point that the Chief Economic Advisor made in the Economic Survey 2020-21.
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