Rating agencies inconsistent in their treatment of China,India, says CEA Arvind Subramanian
India on Thursday slammed global credit rating agencies for not upgrading the country despite clear improvement in its economic fundamentals.
Chief Economic Adviser of India, Arvind Subramanian said the agencies are following "inconsistent" standards while rating India and China.
India has been placed in the lowest investment grade by these agencies which leads to higher cost of borrowing in the global markets due to investor risk perceptions associated with it.
"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 said.
Citing 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 VKRV 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 truly striking how the tune and tone of the analysis changes.
Analysts fall over backwards to rationalise the official decision," Subramanian said.
Economic Affairs Secretary Shaktikanta Das had also expressed dismay last week saying that global rating agencies are far detached from ground realities and must introspect as the reforms initiated certainly warranted an upgrade. pti