Economic Highlights

New Delhi, 1 December 2017

Rating Agencies

TIME INDIA JUNKS THESE

By Shivaji Sarkar

The World Bank, International Monetary Fund and the Asian Development Bank have positive outlooks for India. But the credit rating agencies are yet to budge. Moody’s have made a minor upgrade after 14 years to Baa2 and S&P has not budged at all. The big question then is: Is India at fault or the rating agencies?

Early this year in May, Economic Affairs Secretary Shaktikanta Das had stated that India was being denied an upgrade even as growth and fundamentals improve. He is right but Moody’s have a different take. They say Indian banks have a whopping $136 billion in bad loans (Rs 12 lakh crore as per Indian estimates, including the write-offs). It says India’s debt situation was not as rosy as the government maintained and its banks were a cause for concern.

The S&P kept the rating it had given in 2007 unchanged at BBB minus, a notch above the junk status, with stable outlook but commenting that there are vulnerabilities stemming from low per capita income and high government debt balance -- fiscal deficit. Both agencies have doubts about the repaying capacities.

They may be correct. But the agencies also need to answer why they had kept the ratings low during 2004, when the country ruled by NDA I under Prime Minister Atal Behari Vajpayee showed remarkable improvements in forex reserves, GDP growth, fiscal balance, inflation, farm growth, jobs, manufacturing and other related economic and political areas. It gave the country the epithet of ‘India shining’.

Most rating agencies had put India even then -- after 13 years of the ushering in of globalisation and liberalisation reforms -- in junk grade. The Government needs to ask them this pointed question. The 2004 was landmark in many ways. For the first time economic growth more than doubled at 8.2 per cent in 2003-04 compared to four per cent a year ago.

Did not the rating agencies overlook this? The effect of this was seen in the subsequent years of the UPA regime, when the growth continued to rise to touch global best. Had India got higher ratings in 2004, today’s controversy would not have been there.

This was not reflected in the ratings by international agencies. This should be a matter of deep study. If the Narendra Modi government has raised the issue with them, they have to answer as it may not be about the functioning of the present government but why they have committed the historical blunder.

India continued to lead the global growth even when the US and Europe suffered the worst sub-prime crisis -- upheaval in their financial institutions -- in 2007-08. Even the US and other government banks and financial institutions collapsed under the worst mismanagement of their economies.

India was doing well at that time. The rating agencies played truant despite accepting that India managed its economy well. They have to answer to the Indian people today for reneging. It should be considered either a great failure on their part or if it is willful then a crime.

Moody’s Vice President William Foster now says that India’s potential is higher than BAA-rated nations. So should the debt alone be the criterion to keep India-rating suppressed?

But first, let’s look at the similarities. Both the agencies foresee stronger GDP growth of approximately 7.5-7.6 per cent over the forecast horizon of next few years. The slowdown to 6.5-6.6 per cent caused by demonetisation and GST implementation-led disruptions is seen as short-term disturbances, beyond which growth is expected to rebound.

While Moody’s attributed the impending growth revival to multiple reform measures taken up by the government recently, S&P linked it to stronger consumption growth, comfortably high foreign currency reserves, political stability and robust democratic institutions.

Well now with so much of positivity, do they have a reason to suppress the outlook? India is definitely showing improvement in many ways. It has an unparalleled political stability. Modi’s whirlwind tours have improved the image of the country across the globe. India is having new business partners. It is giving leadership to the world economy not only in BRICS, Pacific region but even is challenging the G-20 and G-8 leadership to reckon it as equal.

China’s reported debt surged to 264 per cent of its GDP at the end of 2016, from 193 per cent in 2009. In contrast, India’s debt fell to 66 per cent of its GDP from 72 per cent. The World Bank and IMF ratings though accepted as reality by both the agencies are at best ignored. The two have their problems but they accept that India is definitely not in the junk grade.

The S&P says India’s rating reflects its strong GDP growth, sound external profile and improving monetary credibility. These, it said, are “balanced against vulnerabilities stemming from the country’s low per capita income and relatively high general government debt stock.” Even Fitch has ignored the progress of India and kept the rating unchanged. Is it not then tendentious to keep the rating low?

What could be the motive? The agencies certainly are not favourably placed for India. They feel that a higher realistic grade for India would benefit it globally. The Indian corporate could get credit at cheaper rates. But that could be upsetting the pie. India getting credit at lower rates also means it would make credit dearer for western contenders. An India growth is envy for many countries which are still grasping. Even the US sees difficulty in managing its economy despite some positive indications.

A mood surge in Indian markets is still not good news for countries who have been exploiting the country through various machinations. One aspect is to keep the rupee at a low parity. It makes goods in India expensive while the western nations benefit as imports for them become cheaper. In international reckoning India since 1966, the first devaluation of rupee has been a loser.

Globally, howsoever, diplomatically they may look friendly the countries play such games through various bodies like these agencies. India needs to be cautious and challenge, as rightfully now they have done, in accepting the ratings. India needs to promote its own credible rating agency and junk the international ones. ---INFA

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