Opinion Express View: CEA’s concerns apart, India needs better data
Chief Economic Adviser is right in critiquing credit rating agencies. But the country also needs to improve data quality
Sustaining peace requires constant investment in building local peoples’ trust in the administration and security forces as much as in development and expansion of opportunity. 
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Between 2006 and 2022, India’s GDP at current prices has risen 3.6 times from $940 billion to $3.4 trillion and it has progressed from being the world’s 14th to the 5th largest economy. The country’s foreign exchange reserves have also gone up from a mere $177 billion in end-2006 to $616 billion now. Nor has India ever defaulted on its external debt obligations — including during the 1991 balance of payments crisis. Yet, its sovereign credit rating was last raised to BBB- (the lowest investment grade) by S&P Global in January 2007 and by Fitch in August 2006.
The third credit rating agency (CRA), Moody’s, upgraded India’s credit from the lowest investment grade (Baa3) to the next level (Baa2) in November 2017, only to restore it to Baa3 in June 2020. Not for nothing that the Narendra Modi government has protested strongly. “Never in history has the fifth largest economy in the world been rated a BBB-,” as the 2020-21 Economic Survey noted.
A more rigorous recent paper by the office of the Chief Economic Adviser has amplified the point about the “opaque methodologies” adopted by CRAs to arrive at sovereign ratings. The paper has rightly highlighted the reliance by these agencies on qualitative factors based on subjective assessment, as opposed to objective measures of a sovereign’s ability and willingness to pay its debts. Good governance, democracy, ensuring citizen’s voice and accountability, rule of law, and control of corruption are desirable goals in themselves. But the ability to discharge debts is ultimately a function of a country’s macroeconomic fundamentals: GDP growth, inflation, government debt-GDP ratio, fiscal and current account balances, external liabilities, forex reserve levels, and so on. The paper has demonstrated that “governance indicators” explain roughly 68 per cent of India’s assigned credit ratings. The fact that these indicators rely on perceptions and value judgments means any improvement in macroeconomic parameters would matter little when it comes to sovereign credit ratings.
While that’s a sad commentary on the CRAs — being more transparent about their rating process would do enormous good to their credibility — it should not detract from India undertaking self-corrections or improvements on its own at least on two counts. The first is re-emphasising fiscal consolidation: The current general government debt-GDP ratio of 82 per cent is higher than the 77.2 per cent of 2006 and the 66.4 per cent of 2010. The second is data quality, on which legitimate questions have been raised, especially in the absence of any Census or household consumer expenditure survey results after 2011-12. Both need to be accorded the highest priority by the government in power after May 2024.
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