FinMin unveils comparative sovereign ratings index

Investment prospects in India have improved in the past five years as per CRIS, a new index developed by the Finance Ministry for comparison of various countries' sovereign ratings using Moody's ratings.

"India's score has risen from 66.47 in 2007 to 69.83 in 2011. In other words, in relative terms, India has become a better investment destination by 5.06%," Chief Economic Adviser Kaushik Basu told reporters after unveiling the 'Comparative Rating Index of Sovereigns (CRIS)' here.

India's rank in terms of CRIS moved up from 61st position in 2007 to 55th in 2011. The improved score is partly due to the decline in scores of some European nations, leading to deterioration of the world average by over 4.8%.

"Since for investors, relative or comparative rating is such an important concept, it was felt that we ought to develop a new index which captures precisely this idea," he said, adding that CRIS would be a periodic feature.

The index is based on the ratings of global agency Moody's and data on the GDPs of 101 nations given by the IMF. Going forward, the ratings of other major rating agencies like S&P and Fitch might be used for CRIS.

Paraguay, Indonesia and Peru were the countries that registered the maximum increase in their ratings between 2007 and 2011, as per CRIS, while Portugal, Ireland and Pakistan witnessed the biggest fall in the index.

"The index uses external data on GDP and ratings combined in terms of pure mathematical and statistical methods without interventions or interpretations," Basu added.

The formula used for calculating CRIS would be made public at a later stage, he said, adding, "We did some research... We believe we are the first [to develop such an index]."

Giving details about CRIS, the CEA said major credit ratings agencies provide the sovereign credit rating of each nation as an absolute grade. How other nations fare does not matter in a particular nation's rating score.

"When an investor searches across nations for a place to put her money, the relative rating of nations is important... [it is entirely possible] a particular nation that has had no rating change may now be better off or worse off in comparative terms," Basu added.

Also, a nation that has travelled down the rating ladder in absolute terms may be, in relative terms, better off because others have done even worse, he said.