Wednesday, 17 May 2017

India’s current credit rating does not reflect the stability of the economy

India’s current credit rating does not reflect the stability of the economy

The Economic Survey 2016-17 brings out a bias(पक्षपात) in perception about the Indian economy by international Credit Rating Agencies (CRAs). Recently, chief economic adviser Arvind Subramanian reiterated the inconsistent standards of CRAs, particularly dealing with India and China. For example, S&P maintained India’s status quo at BBB- (moderate credit risk) since 2007 while it has upgraded China from A+ to AA- (high credit quality) in 2010; even though macroeconomic fundamentals of India has improved in past few years. International ratings play an important role for governments and companies in emerging countries like India to raise capital in the international financial market.

A lower credit rating means higher cost of borrowing through risk premium and lower investors base.

Since 2007, the Indian economy has shown improvement in the most relevant macro indicators. The foreign direct investment (FDI) inflows have almost doubled from $22.8 billion in 2007 to $55.56 billion in 2016.

The primary deficit, the difference between receipts and non-interest expenditures, has decreased from 4.5% in 2009-10 to 1.6 % GDP in 2015-16.

Further, current account deficit (CAD) to GDP has significantly fallen (गिरा हुआ) from 4.8% in 2012-13 to 1.1% in 2015-16.

The most important factor, the debt to GDP ratio, is improving gradually, falling from 74% in 2007 to 68.5% in 2016. India’s debt is mostly dominated(प्रभुत्व) by internal public debt with little share of external debt. 

India’s debt ratio is substantially (काफी हद तक)lower compared to countries such as Japan(239.2% ), Singapore, US and Spain with debt ratio of  112%, 107% and 99% respectively, in 2016.

Therefore, not upgrading India’s rating is not justified when the economy is growing at more than 7% in a country which has never defaulted(चूक).''


S&P maintained India’s status quo at BBB- (moderate credit risk) since 2007.
A lower credit rating means higher cost of borrowing(कर्ज लेना) through risk premium and lower investors base.

About Credit Rating Agency (CRA)

A credit rating agency (CRA), also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt,[2] but not of individual consumers.

AAA/Aaa 43 0.18%
AA/Aa2 73 0.28%
A 99 n/a
BBB/Baa2 166 2.11%
BB/Ba2 299 8.82%
B/B2 404 31.24%
CCC 724 n/a


Definitions of bias पक्षपात

prejudice in favor of or against one thing, person, or group compared with another, usually in a way considered to be unfair.
there was evidence of bias against foreign applicants,

synonyms: prejudice, partiality, partisanship, favoritism, unfairness, one-sidedness, bigotry, intolerance, discrimination, leaning, tendency, inclination, predilection, casteism

in some sports, such as lawn bowling, the irregular shape given to a ball.
This model bowl has the Traditional bias which has stood the test of time wherever Lawn Bowls is played.

cause to feel or show inclination or prejudice for or against someone or something.
readers said the paper was biased toward the conservatives.

synonyms: prejudice, influence, color, sway, weight, predispose, distort, skew, slant

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