The article originally appeared on India Today.
Here it is bit modified and extended.

After India, now China has taken on the global credit rating agency Moody’s for downgrading its credit ratings. Moody’s has degraded China’s sovereign rating by one notch, from AA3 to A1, first for China in 28 years. Chinese economy had not seen a rating downgrade from 1989 even if its economy has started slowing down for past some years. But China could not fathom it. According to a Global Times report, the Chinese Finance Ministry has said that the “rating downgrade by the Moody’s was based on inappropriate methodology”.

And its arguments are similar to India’s: “Moody’s has overestimated the difficulties faced by the Chinese economy, while underestimating the capabilities of China to deepen side-supply reforms”. India, too, has argued that credit rating agencies overestimate the challenges faced by the Indian economy, and underestimate the nation’s capabilities – especially in light of the economic reforms initiated in the last three years.

Moody’s has warned China for its slowing economy and rising debt and has based its downgrade on these parameters, “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”.

India has also highlighted the concern of ‘inappropriate methodology’ being used by the credit ratings agencies. According to a Reuters report from December 2016, “India had criticised Moody’s ratings methods and pushed aggressively for an upgrade.” According to the report, India’s Finance Ministry, in a series of letters and emails last October, raised questions over Moody’s rating methodology which was ignoring India’s reducing debt burden and sustained impressive growth. But Moody’s rejected India’s claims raising concerns over India’s debt burden and bad loans worth $136 billion saying “not only was India’s debt burden high relative to other countries with the same credit rating, but its debt affordability was also low”.

Moody’s logic has been, though India’s debt-to-GDP ratio has come down to 66.7 per cent from its peak at 84 per cent in 2003, interest payments take away one-fifth of government’s revenue. Also, as per the report, India’s revenues at 21 per cent of GDP are considerably lower than the median income of the countries with the BAA ratings that is at 27.1 per cent. Moody’s further contended that “a resolution to the banking sector’s bad loan problems was “unlikely” in the near-term”.

Despite the concerns raised by India, Moody’s in November 2016, Moody’s went on affirming India’s BAA3 rating with a positive outlook, ignoring Economic Affairs Secretary Shaktikanta Das’ arguments of “stable external debt parameters and the slew of reforms introduced in the realm of foreign direct investment”, the Reuters report quoted from his letter written to Moody’s.

And not only Moody’s, two other major credit ratings agencies, Standard & Poor’s and Fitch have also refused to budge on India’s concerns. Fitch’s BBB- rating, that is the lowest investment grade rating, has been in place since August 2006 and S&P’s BBB- rating from January 2007.

These three agencies, which control 95 per cent of the market, have been so obstinate in refusing India’s concerns that India’s Chief Economic Advisor Arvind Subramanian had to term their approach as ‘egregious and compromised’. Subramanian said, “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). He called the assessment of the international ratings agencies as ” one of the most egregious examples of compromised analysis”.



It seems, after successful ICBM and other military hardware test launches, it’s now India’s economic progress that has left the Chinese power elite uncomfortable. After targeting the Indian government’s demonetization move, equating it with terms like ‘gamble with money’ and ‘failure’, it is now about Indian stand on the global credit rating agencies.

While presenting India’s annual Economic Survey on January 31, the Chief Economic Adviser (CEC) Arvind Subramanian had slammed the rating agencies. A PTI report quotes him, “How did the rating agencies behave? They despite all these risky developments they did not downgrade China and our rating was maintained six notches below China. This is a reflection on how these institutions work. You should question them.”

Global Times, China’s official mouthpieces, now has responded to it. An opinion piece by a senior economist writes in Global Times that ‘it is noticeable that S&P has not adjusted India’s rating since 2011, Fitch hasn’t done so since 2006 and Moody’s hasn’t changed since 2004. With its rating left at such a low level for over 10 years, India’s dissatisfaction and jealousy toward China seems understandable’.

Mark the words ‘dissatisfaction and jealousy toward China’ here. They tell the prevailing Chinese mindset. This opinion piece written by an economist has economic jargons and technical details to prove its point that ‘instead of being obsessed with the sovereign credit ratings themselves, India should take a more macro view so as to fundamentally find out the underlying problems and solve them’. Indian economists, too, have successfully used economic parameters and jargons to explain the bias of the rating agencies.

While presenting India’s annual Economic Survey, CEC Subramanian, had come down heavily on the credit rating agencies, accusing them of having a China bias. Questioning rating agencies’ ‘poor methods and inconsistent standards’, Subramanian had said that the sovereign rating agencies had consistently ignored India’s economic reform measures like GST, Aadhaar integration, monetary policy framework agreement and eased FDI regime, coupled with its commendable fiscal discipline and strong growth trajectory.

Subramanian had further said that the rating agencies failed to see that India’s economy was growing at a faster pace while China’s was slowing down, from an average of 10 percent to 6.5 percent now. China’s sovereign ratings, fixed years ago, remained same even if its economy came down. The rating agencies have done the same with India. The contention is the approach here. S&P raised China to AA from A+ in 2010 and it is still at the same level in spite of clear growth pangs in the Chinese economy. It scaled down India from BBB+ to BBB- in 2012 and remains stuck there despite clear signs of growth in the Indian economy that has made it the world’s fastest growing economy.

So, it is not about jealousy and dissatisfaction. It’s about a dignified, rightful treatment.

Unlike other emerging economies, India has an unique position. While others are struggling, fundamentals of India’s economy remain sound. And it is too big to fail or to be taken lightly. India is the world’s third largest economy in terms of purchasing power parity and the only bright spot, by all assessments, to drive the world’s growth in coming years, especially after China is slowing down. So there has to be this inevitable comparison. When it was so in heydays of the Chinese economy, then why not the same yardstick for India. India or Indian media didn’t rush to ridicule or mock or criticise China when the whole world was looking at its miraculous growth.

India’s economic adviser gave expression to some valid concerns, slamming the credit rating agencies with his ‘come back to assess us after half a century’ jibe. India has been raising questions on the rating mechanisms used by the credit rating agencies for quite some time. After Subramanian’s dig at S&P, in another move, questioning the criteria used by the rating agencies, Indian government has now asked Fitch to explain its rating methodology.



OECD (The Organisation for Economic Cooperation and Development)’s finding today reaffirmed the healthy picture for Indian economy.

The report is based on the assessment of Composite leading indicators (CLIs). Leading Indicators indicate about the direction an economy is changing to. OECD says CLIs provide ‘turning point in business cycles’ – calculating variations in output – its highs and its lows.

The report says the growth momentum is Japan, Germany and India is stable – or the indicators say so. Statistical indicators of the report may look confusing to a layman but the text is clear.

India has already become the world’s fastest growing economy. It is already the world’s third largest economy on ‘purchasing power party’ (PPP). On gross indicators, it is projected to become the world’s third largest economy by 2030. By then, it will have the largest middle class as a Harvard study finds. That means the biggest marketplace for global companies (including China’s).

The report says growth is ‘easing down’ in the US, the UK, Canada and China. That translates to slowdown in economies. So, the other major powerhouse, that has been the leading growth engine of the world economy for decades, China, is slowing down, as has been projected and is being analytically projected.

The OECD report also puts questions on economies of another two BRICS block countries, i.e., Russia and Brazil. While Russia’s positive growth is ‘driven by tentative signs’, Brazil has seen ‘loss in its growth momentum’. Though the dictator in Vladimir Putin will see it an overall positive sign for his presidency.

The report is also positive about economies in Japan, Germany and Euro area.

Japan, the world’s fourth largest economy, has seen a consistent rough patch and it coming back to the stable track is a good sign for the markers the world over. Germany is already the central point of Europe’s economy and the report see stable growth momentum here. And when it is seen in parallel with a ‘firming up’ growth in the Euro area (emphasizing on France and Italy), we find reasons to believe in the reports that Greece would remain in the Eurozone with a common currency.

OECD is a Paris based major global economic block of 34 countries, mainly European. The US, Canada, Japan, Australia, South Korea, Turkey and others joined it later on.

The report released on July 8 is based on data from 33 OECD member countries and six non-member countries.

©/IPR: Santosh Chaubey –