S&P challenges Arvind Subramanian's 'inconsistent' standards remark

Rating methodologies are transparent & consistent, contended the global rating agency

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Two days after a key finance ministry official questioned the methodologies used by global rating agencies and slammed them for following "inconsistent standards", S&P on Thursday claimed that its rating methodologies are transparent and consistent across the globe.

"It is important to note that we apply the same methodology consistently for sovereigns across the globe and India is no exception. Our sovereign rating methodologies are transparent and are freely available on our website," S&P director for sovereign ratings Kyran Curry said in a webcast.

"Broadly, we spell out the broad mix of which factors that we look at in assessing sovereign credit, including in India's case the balance between fiscal consolidation and stimulating growth," he said.

Presenting the Economic Survey on January 31, chief economic advisor Arvind Subramanian had slammed the global rating agencies for their 'inconsistent' standards while rating India vis-a-vis China.

He had said agencies did not consider reforms like FDI liberalisation, bankruptcy code, monetary policy framework agreement, GST Bill and the Aadhaar Bill, while rating the country, which was a poor reflection on their credibility.

"Despite all these achievements, it is very interesting that these agencies have not reflected on this... We've shown in the survey what kind of inconsistent standards the rating agencies have. We call these poor standards because S&P said last year that there's no way they could upgrade India because of GDP and fiscal deficit," he had said.

S&P has a BBB- rating on India with a stable outlook, while it has AA- rating on China with a negative outlook.

S&P had in November ruled out an upgrade in the country's ratings for some considerable period, citing low per capita GDP and relatively high fiscal deficit. The government debt to GDP ratio stands at 68.5 per cent.

Subramanian had said S&P has rated China six grades above India and has held China's ratings steady since 2010 despite economic growth slowing to 6.5 per cent from 10 per cent. In contrast, Indian GDP has moved in opposite direction and growth has increased, he had said.

Explaining S&P's rationale for higher rating on China, Curry said, "If I can directly touch upon the comparison between India's BBB- rating and China's AA- rating with a negative outlook, I think this comparison is very useful but it is worth noting that China has a GDP per capita about five times greater than India and China's debt stock is only about 30 per cent of GDP."

"It is also worth noting that because of China's much lower debt stock, its debt servicing cost is only 3 per cent of revenue compared to 21 per cent for India. So, these are the factors that underpin China's higher rating," Curry said.

But Curry was quick to add that with the progress in fiscal consolidation, there can be some upsides on its ratings but did not offer a timeline.