NEW DELHI: The Economic Survey 2016-17 presented on Tuesday questioned the complex methodology that global rating agencies use while assigning sovereign ratings to countries.In a hard-hitting analysis , the survey said if the 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 Standard & Poor’s ruled out any ratings upgrade for India for a considerable period, mainly on the ground of its low per capita GDP and relatively high fiscal deficit The survey talked about ‘contrasting experiences’ of change in sovereign ratings assigned by rating agencies to China and India over the past couple of years.Comparing India with China, the survey noted that Chinese credit expansion in 2009 pushed the credit-to-GDP ratio higher by 63 percentage points of GDP. This was much larger than the India’s credit-to-GDP ratio.“At the same time, 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 pointed out.“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,” it added.Taking a dig at US financial crisis, it pointed out how the S&P had certified AAA rating to mortgage-backed securities in the US despite having toxic underlying assets. It is worth asking if variables used for assessing India’s risk of default are right.“Lower middle income countries experienced an average growth of 2.45 per cent of GDP per capita (constant 2010 dollars) between 1970 and 2015.

Source: Economic Times January 31, 2017 09:00 UTC