Ratings: India has a valid reason to be aggrieved

livemint.com:

There has been much debate over the sovereign credit rating India deserves. New Delhi has long lamented that rating agencies have been unjust in assigning the country their lowest investment grade. Re-examining Narratives: A Collection of Essays, released last week by the Chief Economic Advisor’s office, attempts to explain why these agencies are wrong.

Its first essay focuses on their opaque methodologies that over-rely on qualitative factors to assess the will of debtors to pay back debt (beyond the ability to do so). If mental short-cuts and biases creep in, then bad calls are sure to follow on which nation-states are how worthy of credit. While the essay’s basic argument is about emerging economies getting a raw deal from the big three, all based in the West, India’s weak ratings are what it principally questions.

Our post-pandemic economy has fared impressively and macro variables look healthy, but Standard & Poor’s still rates India ‘BBB-minus,’ unchanged since 2007; ditto for Fitch, which last made a change in 2006. Moody’s rating is still ‘Baa3.’ We have foreign exchange reserves piled above $600 billion, our capital inflows are robust, external balances are manageable and obligations under no strain. Government debt, at about 80% of GDP is largely internal and hardly outsized for a fast-growing economy.

Indeed, the far bigger burdens of richer countries get little reproach, even if they openly flirt with default. Not only has Independent India never defaulted on its debt obligations, but taken care not to get into a tight spot after a scare back in 1990-91. The difference in treatment by rating agencies can be attributed mostly to abstract aspects of their analysis, which go heavily by governance reviews that