FinMin to raise concerns with S&P

Gopalan terms rating agency's methodology not transparent

The finance ministry today raised questions on the methodology of international rating agency Standard & Poor’s (S&P’s) in assigning credit ratings. and said it would soon talk to the agency for removing the apprehensions raised by them.

On S&P’s indication that India may be the first country among BRIC nations, whose ratings may be downgraded from investment grade to junk, economic affairs secretary R Gopalan said the process they followed in assigning ratings to a country was not very transparent, and this was made known to them when they had visited India in April this year.

“We asked them ‘why do you take so many details and decide on ratings based on only one or two aspects?’ We also asked them to share the result of their exercise before taking a final call on the rating, but they did not do that,” said Gopalan.

He also said the rating agency was asked why the country was bracketted with countries whose attributes were lower than that of India.

We don’t seem to be having very transparent answers on the queries we raised,” stressed Gopaln.

He, however, stressed there was also a need to keep engaging the credit rating agencies on a continuous basis so that they could be convinced about the ground realities. He said the questions raised on reforms may result in more urgency to take steps in this regard, especially in the case of petroleum subsidies.

“We will have a conference call soon, and will have discussions with them to explain how we are much better off in many of the aspects than what they are thinking. And on some of the challenges that they have mentioned, we will also give them answers how we will be in a position to meet those challenges,” said Gopalan.

He said that a very honest and transparent discussion was always the best way to remove either some of the doubts which are unfounded or some of the prejudices which for historical reasons may stay in their mind.

The economic affairs secretary pointed out that the rating issue was raised during the ongoing road shows in Gulf countries for attracting Qualified Foreign Investors (QFIs).

Gopalan, who led the Indian officials in the road shows in the first two days of the five-day schedule, pointed out that one of the questions was how the finance ministry handles these credit rating agencies with countries like Spain being assigned better ratings than India.

Gopalan said that the road shows were witnessing a good response, and explaining the Indian situation to investors and other participants was necessary, as they indicated that allocations to India may be shifted from other countries if the country had better ratings.

On S&P’s observations, principal advisor to the Planning Commission, Pronab Sen, said the job of a rating agency was not to dictate the government of a country what policies to make.

“The government of India or, for that matter, the US knows what is wrong with the economy and what is to be done; they don’t need the advice of an independent ratings agency. S&P’s dictating policy is totally unacceptable,” said Sen.