While denouncing the “astonishingly inconsistent” conduct of ratings agencies such as Standard & Poor’s, Chief Economic Advisor Arvind Subramanian on Tuesday said there was a need to question such companies and the manner in which they had rated India over the last few years.
A section of the Economic Survey’s first chapter dealt with rating agencies’ ‘flawed outlook towards India.’
“We called this box ‘poor standards’ because Standards & Poor’s said last year that there was no way they could upgrade India because of its low GDP and fiscal deficit,” Mr. Subramanian said. “It’s an interesting insight into how these institutions work. I think we should question them.”
Mr. Subramanian’s stinging criticism came during his presentation to the media on the main points of the Economic Survey during which he highlighted India’s achievements over the past year such as the passage of the Goods and Services Tax Constitutional Amendment Bill and the Bankruptcy Bill.
“Despite all these achievements, it is very interesting that the ratings agencies have not reflected this,” he said. “If you look at how they have rated China and India, it is absolutely astonishingly inconsistent. China is about six grades above us in the ratings, at AA-, and BBB- for India.
Yet, the CEA said, since 2008 China had fared poorly on two key risk indicators — growth and credit growth — with its GDP growth slowing dramatically and it’s credit to GDP ratio rising sharply.
“Everybody acknowledges that this is the single biggest risk for the Chinese economy and the world economy,” he said. “India’s economy has moved in the opposite direction and yet how did the ratings agencies behave? They upgraded China and despite all these risky developments they didn’t downgrade them, whereas for India, the rating was maintained six notches below China.”