CEA’s campaign against ‘poor standards’ finds some success

China’s rating downgraded, Arvind Subramanian had repeatedly questioned anomaly

GN Bureau | May 25, 2017


#Economic Survey   #Arvind Subramanian   #chief economic advisor   #rating agencies   #China   #Indian economy  
Arvind Subramanian, chief economic advisor
Arvind Subramanian, chief economic advisor

Chief economic advisor Arvind Subramanian’s campaign for some sense in country ratings has finally found some success. Global rating agency Moody's Investors Service has downgraded China's long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

“The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” the agency said in a statement on Wednesday.
 
Subramanian pointed out the rating disparity in a section in the Economic Survey. In a section of the opening chapter, on some “interesting facts about Indian economy”, he noted “Biases in perception”: “The credit rating, which determines the risk level of the investing environment of a country, of China was upgraded from A+ to AA- in December 2010, while India’s has remained unchanged at BBB-. From 2009 to 2015, China’s credit-to-GDP (the ratio of a country's public debt to its GDP, which indicates a country’s ability to pay back its debt) soared from about 142 percent to 205 percent and its growth decelerated. In contrast, India’s credit-to-GDP, more or less, remained the same.”  
 
More recently, delivering the VKRV Memorial Lecture in Bengaluru on May 11, he once again took up the theme.
 
“Before I talk about Indian experts, let me begin by highlighting one of the most egregious examples of compromised analysis: the assessments of the international ratings agencies.
 
“In recent years, the role of ratings agencies has increasingly come into question. In the US financial crisis, questions were raised about their role in certifying as AAA bundles of mortgage-backed securities that had toxic underlying assets (described in Michael Lewis’ The Big Short). Similarly, their value has been questioned in light of their failure to provide warnings in advance of financial crises. Often ratings downgrades have occurred post facto, a case of closing the stable doors after the horses have bolted.
 
“In recent years, rating agencies have maintained India’s BBB- rating, notwithstanding clear improvements in our economic fundamentals (such as inflation, growth, and current account performance). At the same time, China’s rating has actually been upgraded to AA-, even though its fundamentals have deteriorated, as these charts from the Economic Survey show.
 
“In other words, 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?
 
After the Moody’s announcement, Subramanian made a reference to the analysis in the Economic Survey.
 

Comments

 

Other News

How foreign policy has been Modi’s focus right from the start

The Midway Battle: Modi’s Roller-coaster Second Term By Gautam Chintamani Bloomsbury / 400 pages / Rs 699 Gautam Chintamani, a film historian and author, has penned an in-depth chronicle of prime minister Narendra Modi’s second

Remove unauthorized constructions without pressure: Thackeray to BMC

Maharashtra chief minister Uddhav Thackeray has instructed the Mumbai civic authorities to take immediate action on unauthorized constructions on war footing. In a virtual meeting held on Wednesday, Thackeray said no illegal construction will be tolerated in Mumbai and called upon the BMC to

Covid norms relaxed; Mumbai restaurants, shops to remain open longer

After extending timings of shops and restaurants as well as the reopening of cinema halls and theatres under specified SOPs from October 22, in view of the festive cheer, the Maharashtra government has allowed restaurants and eateries to remain open till 12AM and shops and establishments to function till 1

Global Hunger Index data collection flawed: Arvind Panagariya

Rubbishing the recently released Global Hunger Index 2021, wherein India has slipped to 101 position to be placed below Pakistan, Nepal and Bangladesh, Arvind Panagariya, professor of economics at Columbia University and former vice chairman, NITI Aayog, has said that data collection and methodologies used

‘Blue Zones’ concept of healthy living and its relevance in India

A long life span free from diseases and disability, the so-called healthy aging, has been a matter of prime interest to humanity. It is widely held that the life expectancy is a function of interplay between various genetic and environmental factors. There is scientific evidence to support the fact that on

Motilal Nehru too had petitioned for release of his son: Vikram Sampath

Defence minister Rajnath Singh’s statement, that Mahatma Gandhi had asked V.D. Savarkar to file a mercy petition before the British, has ignited a debate. Vikram Sampath, a historian and author of a recent biography of Savarkar, says two weeks after Jawaharlal Nehru was lodged in Nabha jail, his

Visionary Talk with Dr Arvind Panagariya, Professor, Columbia University & Former VC, NITI Aayog



Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter