1. Is Arvind Subramanian right? India calls out S&P’s conservatism in credit rating upgrade

Is Arvind Subramanian right? India calls out S&P’s conservatism in credit rating upgrade

Arvind Subramanian has repeatedly slammed ratings agencies for their inconsistent treatment while rating India and China, as they have consistently refused to upgrade India’s sovereign rating despite significant improvement.

By: | Updated: November 24, 2017 7:40 PM
S&P kept India’s rating unchanged.

It was a bonanza for India to get Moody’s rating upgrade nearly after 14 years, and a disappointment to not get upgraded by Standard and Poor’s despite getting thumbs up on most of the reforms taken by the Narendra Modi government. The government was quick to term the action “unfair”, which vindicates India’s Chief Economic Advisor Arvind Subramanian, who had slammed rating agencies for their inconsistent treatment.

Arvind Subramanian has repeatedly slammed ratings agencies for their inconsistent treatment while rating India and China, as they have consistently refused to upgrade India’s sovereign rating despite significant improvement in economic fundamentals over the years. He has blamed the ratings agencies for favouring China at the same time, even upgrading it, regardless of the country’s deteriorating fundamentals.

“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?” Subramanian had said in an interview to PTI last year. Now, with S&P one again maintain the status quo, many others have come out and called the rating agency “conservative”.

Economic Affairs Secretary Subhash Chandra Garg said S&P chose to play cautious and hoped that the reforms will reflect in a ratings upgrade next year. Railways and Coal Minister Piyush Goyal said S&P has been historically more conservative and follows Moody’s. Sanjeev Sanyal, Principal Economic Adviser, termed the rating as “a bit unfair” saying the low per capita income is “neither a reflection on our ability or our willingness to pay debt.”

“We are not disappointed but our expectation would be that S&P also takes into account what the government has done,” he said adding S&P has said everything that Moody’s also stated in its rating upgrade.

In January 2007, S&P had raised sovereign credit ratings on India to ‘BBB-‘ with a stable outlook, from ‘BB+’. ‘BBB’ rating is a notch above junk status. “Upward pressure on the ratings could build if the government’s reforms markedly improve its net general government fiscal out-turns and so reduce the level of net general government debt,” S&P said.

Moody’s last week said India was poised for fast growth because of wide-ranging economic and institutional reforms by Narendra Modi’s government. While S&P has retained India’s sovereign rating, the global firm has pointed out certain parameters, which, if improved, would put upward pressure on the ratings.

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