Rating firms not consistent with China, India: CEA

SLAMMING GLOBAL credit rating agencies for not upgrading India despite clear improvement in its economic fundamentals, Chief Economic Adviser Arvind Subramanian said they are following "inconsistent" standards while rating India and China.

India has been placed in the lowest investment grade by these agencies which leads to higher cost of borrowing in the global markets due to investor risk perceptions associated with it.

"In recent years, rating agencies have maintained India’s BBB- rating, notwithstanding clear improvements in our economic fundamentals (such as inflation, growth, and current account performance). At the same time, China’s rating has actually been upgraded to AA-, even though its fundamentals have deteriorated," he said here.

"In other words, the ratings agencies have been inconsistent in their treatment of China and India. Given this record —- what we call Poor Standards -- my question is: why do we take these rating analysts seriously at all?" he said. Citing example of the sub-prime crisis, he said questions were raised about their role in certifying as AAA bundles of mortgage-backed securities that had toxic underlying assets in the US financial crisis of 2008.

Similarly, their value has been questioned in light of their failure to provide warnings in advance of financial crises, he said.

Delivering VKRV Memorial Lecture, he said, on the domestic side, there is a clear relationship between expert analysis and official decisions.