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

“Developing public health infrastructure key to sustainable healthcare for all”

Renowned cardiologist Dr Ramakanta Panda has said that the pandemic has exposed the inadequacy of existing healthcare systems and it is wrong to draw comparisons with Korea, a country with the population equal to that of a single Indian state. While speaking to Kailashnath Adhikari, MD, Gove

SC-appointed panel on farm laws holds first meet

The committee of experts appointed by the supreme court to deliberate with the stakeholders on the new farm laws held its first meeting here Tuesday, with one of its members saying that all stakeholders, including individual farmers, will be heard. Hearing a petition on the farm laws enacted

India’s glitch-free vaccination gathers pace

The nationwide vaccination campaign launched Saturday, the largest such exercise in the world, has started setting new benchmarks, with vaccines administered to 2,24,301 beneficiaries in the first two days. “India has vaccinated the highest number of persons on Day1 under its COVID19 v

Maharashtra to spend Rs 2,500 crore to augment, develop power infrastructure

The Maharashtra government has announced a spending of Rs 2,500 crore annually to develop infrastructure of state-owned distribution company Mahavitaran (MSEDCL).   Out of the total amount, Rs 1,500 crore will be spent on energisation of conventional agriculture pumps and Rs 1,000 crore

Launched: Largest vaccination drive in history

India on Saturday began the massive vaccination drive against Covid-19, as prime minister Narendra Modi paid tributes the ‘corona warriors’. “Such a vaccination drive at such a massive scale was never conducted in history. There are over 100 countries having less than 3 cro

"TV not in business of news; it is in the business of polarisation”

Television news these days has a loose relationship with truth, says senior journalist, columnist and author Vir Sanghvi, adding that it is not telling the truth and polarising opinions. In a live webcast with Kailashnath Adhikari, MD, Governance Now, during the Visionary Talk series held by

Visionary Talk with Dr Ramakanta Panda, VC & MD Asian Heart Institute





Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter