Economic Survey 2021 Lambasts Biased Sovereign Credit Ratings; Asks Agencies To Be More Transparent, Less Subjective

These credit ratings also damage flows of the foreign portfolio investments, said the document prepared by the Finance Ministry’s Chief Economic Advisor Krishnamurthy V. Subramanian. Questioning whether India's sovereign credit ratings reflect its fundamentals, the survey found evidence of a systemic under-assessment of India's fundamentals as reflected in its low ratings over a period of at least two decades.

Coming down hard on sovereign credit ratings while describing them as “noisy, opaque and biased”, the Economic Survey 2020-21 on Friday said the ratings do not reflect the fundamentals of the Indian economy.

These credit ratings also damage flow of the foreign portfolio investments, said the document prepared by the Finance Ministry’s Chief Economic Advisor Krishnamurthy V. Subramanian.

Posing questions on India’s sovereign credit ratings, the survey said: “India's fiscal policy must, therefore, not remain beholden to such a noisy/biased measure of India's fundamentals and should instead reflect Gurudev Rabindranath Thakur's sentiment of a mind without fear,” the survey said.

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Categorically stating that India's fiscal policy should be guided by considerations of growth and development, the economic survey said the developing nations must come together to address this bias and subjectivity inherent in sovereign credit ratings methodology to prevent exacerbation of crises in future.

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The survey pointed out India is a clear outlier on several parameters not only now but the last two decades as well in comparison to the nations rated between A+/A1 and BBB-/Baa3 for Standard and Poors (S&P) and Moody’s.

The survey also noted India is an outlier on parameters like GDP, growth rate, inflation, general government debt (as per cent of GDP), cyclically adjusted primary balance (as per cent of potential GDP), current account balance (as percent of GDP), political stability, rule of law, control of corruption, investor protection, ease of doing business, short-term external debt (as per cent of reserves), reserve adequacy ratio and sovereign default history.