Fitch explains rating method to government

There seems to be a change in the equations between the global rating agencies and the government.
On Tuesday, Fitch representatives met senior finance ministry officials for the customary post-Budget meeting. What was different this time around was that Fitch officials explained the rating agency’s methodology to finance ministry officials.

At earlier meetings with rating agencies, with Moody’s and S&P, senior policymakers from North Block used to repeatedly impress upon the agencies the reform measures carried out and the policy initiatives taken, asking for an upgrade of India’s ratings.

“They (Fitch) were explaining their ratings methodology to us,” a senior government official told Business Standard after the meeting. “We had our queries. There were some parts of their methodology which we felt were subjective rather than objective and conveyed that to them.”

At the meeting, finance ministry officials told the Fitch representatives that India has not deviated too much from its fiscal consolidation road map. The agency asked the government to take a decision on the recommendations of the Fiscal Responsibility and Budget Management (FRBM) committee soon.

“They want a quick view to be taken on the FRBM report,” an official told reporters after the meeting. “On fiscal consolidation, we did say that we are committed to the road map, we told them it is not much of a deviation.”

Over the past year, there has been growing criticism of what the finance ministry perceives as unfair treatment of the world’s fastest growing major economy. In the 2016-17 Economic Survey, Chief Economic Advisor Arvind Subramanian had a section called ‘Poor Standards’, in which he spoke about how China was judged differently from India.

 
“Despite all these achievements (by Centre in the past one year), it is very interesting that ratings agencies have not reflected the action taken by the government,” Subramanian had said in his post-Economic Survey media briefing. “S&P said last year that there is no way they can upgrade India because of low GDP (gross domestic product growth) and fiscal deficit. But if you look at how they have rated India, it is absolutely astonishingly inconsistent compared with China. China is six grades above India, they are AA- and we are BBB-. And yet since 2008, China’s GDP growth has come down dramatically and credit-to-GDP ratio has gone up dramatically.

Everyone acknowledges that this is the single biggest risk to not just China but the world. India’s indicators have moved in the opposite direction. And yet how did the ratings agencies behave?

They upgraded China and in India’s case, ratings weren’t upgraded.”

Other senior government officials, including Finance Minister Arun Jaitley and Economic Affairs Secretary Shaktikanta Das have also criticised these agencies. S&P has ruled out an upgrade for India from the lowest investment grade in the next two years. Moody’s Investors Service, too, expressed its inability to upgrade India because of muted private investment and rising non-performing assets.

S&P has a BBB- rating on India’s long-term sovereign bonds with a stable outlook. Moody’s has a Baa3 rating with a positive outlook. Fitch has a BBB- rating with a stable outlook.