Millennium Post

Finmin questions US rating agency Moody’s methodology

For them to take root before upgrading the country’s sovereign rating.

“Our concern was mainly about the methodology of the whole process... Of course, the rating agencies are free to arrive at their own conclusion.,” Economic Affairs Secretary Shaktikanta Das said.

“I thought the due process has to be followed and you cannot jump the gun,” he said alluding to Moody’s making certain comments in public a day before having met the Finance Ministry.

Calling the reform process slow and gradual with muted private investment and bad loans posing a challenge, Moody’s said on Tuesday it could upgrade India’s rating in 1-2 years if it is convinced that reforms are “tangible”.

India’s sovereign rating by Moody’s stands at ‘Baa3’, the lowest investment grade -- just a notch above ‘junk’ status.

Das added: “We found the methodology to be deficient. That is something we pointed out. So we expressed our serious concerns about the methodology that they are following. Then, there were other issues. We explained to them about the reforms gathering roots and developing sufficient depth.” 

During meeting with the Finance Ministry yesterday, representatives from Moody’s are learnt to have said that a rating upgrade could be a reality when the benefits of reforms could be felt on the ground and the country’s banking sector stabilises.

Das said: “The depth of the reforms in India cannot be doubted. It is a unidirectional process for the last several years, especially in the last two years. The pace of reforms, and the pace at which reforms are undertaken by the government due weightage has to be given to that.

“You cannot say that I will give zero weightage and I will wait till infinity to see that these reforms take roots...I don’t should not be a kind of bottomless pit.” 

In April last year, Moody’s had changed India’s rating outlook to ‘positive’ from ‘stable’ citing reform momentum and had said that it could consider India for an upgrade in next 12-18 months.

During the meeting, the ministry also impressed upon the global rating agency about the government’s resolve to contain fiscal deficit at 3.5 per cent of GDP in the 
current fiscal. 

Govt appoints 3 members to interest-rate setting panel

The Indian government on Thursday appointed three members on the Monetary Policy Committee (MPC), who along with RBI nominees are likely to set the benchmark interest rate in the upcoming monetary policy review with a view to contain retail inflation at the targeted level of 4 per cent. 

The government nominees on MPC headed by RBI Governor Urjit Patel are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad. 

The Appointments Committee of the Cabinet (ACC) cleared the three eminent experts as members on the MPC for a period of four years, a government notice said. RBI nominees are governor, a deputy governor and one more representative from the central bank.

Ghate was part of a five-member technical advisory committee that provided advice on interest rates to the RBI Governor ahead of each policy review. RBI’s fourth bi-monthly monetary policy review for 2016-17 is scheduled on October 4, and interest rate decision is expected to be taken by the panel instead of the current practice of RBI Governor alone. 

The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016. The MPC will work with regard to setting up interest rate to meet the inflation target fixed by the government.

Under the agreement with the government, RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a ‘glide path’ to achieving the median mark.

As per the norms for MPC, each member shall have one vote and in case of a tie, the RBI Governor shall have a casting vote. Presently, the Governor has over-riding powers to accept or reject the recommendation of RBI’s panel on monetary policy. 

The Governor will have a casting vote once the country shifts to the panel system. Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. The idea of setting up an MPC was mooted by an RBI-appointed committee led by then deputy governor Urjit Patel in February 2014. 
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