In a much-needed shot in the arm, global think-tank OECD Tuesday pitched for a rating upgrade for India and said global rating agencies had become “overtly cautious” and conservative in not revising India’s rating for last 14 years. “I believe India deserves a better rating,” said Angel Gurria, Secretary General of the Organisation for Economic Cooperation and Development (OECD). He said the rating could be changed to “neutral” and then “positive”. “With the kind of reform programmes that you are putting out they can’t fail to notice so this should have.”
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On why India’s rating has not been changed in the last 14 years despite it being a very different country in these years, Gurria said, “Well, let me try a couple of considerations. First what the Rating agencies do? Rating agencies calculate the likelihood of default on a borrowers credit. India is in investment grade, in the lower rung.” He further said, “Do I believe that the rating agencies today should increase India’s rating? Absolutely. And I think they will.”
The rating agencies are cautious because “they got it so wrong with the (global economic) crisis.” “They were part and parcel of why the crisis actually happened. By putting all those AAA ratings, on those banks full of mortgages… And we got the biggest ever crisis in our life times,” Gurria said.
The OECD Secretary General gave an analogy of the proverb one bitten twice shy when he said, “We have a saying in Mexico that when you burn yourself in milk then you would be blowing even to the yogurt, you don’t wanna get burnt again.” Gurria said rating agencies have become “so overtly cautious” as they “don’t want to be caught being overtly aggressive.”
“Now they are erring on the other side. Because they were too exuberant and now they are conservative. And of course the better place is the middle,” he said. India has often criticised methodology used by rating agencies like Moody’s and pushed aggressively for an upgrade. Rating agencies on the other hand cite concerns over the country’s debt levels and fragile banks in their refusal for an upgrade.
The government feels the rating agencies have not accounted for a steady decline in the India’s debt burden in recent years and have ignored its levels of development when assessing their fiscal strength. The Economic Survey too has questioned the complex methodology saying if per capita GDP is a key to upgrading sovereign rating as is suggested by Standard & Poor’s while maintaining status quo on India’s rating in November, 2016 then poorer countries might be provoked into saying, “Please don’t bother this year, come back to assess us after half a century.”
The Survey, presented to Parliament a day before Budget for 2017-18 was presented, spoke about “contrasting experiences” of change in sovereign ratings assigned by rating agencies to China and India over the past couple of years.
“Chinese growth slowed down from over 10 per cent to 6.5 per cent. How did S&P react to this ominous scissor’s pattern, which has been acknowledged universally as posing a serious risk to China, and indeed the world? In December 2010, S&P raised China’s rating from A+ to AA and it has never adjusted it since, even as the credit boom has unfolded and growth has experienced a secular decline,” the Survey had said.
“In contrast, India’s rating has remained stuck at the much lower level at BBB-, despite the country’s dramatic improvement in growth and macro-economic stability since 2014.”