International Rating Agencies Undermine India's Growth: Arvind Subramanian

NEW DELHI: Chief Economic Advisor (CEA) Arvind Subramanian slammed the international rating agencies for maintaining India's rating at BBB- despite improvement in economic fundamentals such as inflation, growth and current account performance.

"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," said Subramanian in Bengaluru.

Delivering the 6th VKRV Rao Memorial Lecture on 'Competence, Truth & Power: Macroeconomic Commentary in India', the CEA said at the same time, China's rating had been upgraded to AA- even though its fundamentals have deteriorated.

The lecture, named after India's noted economist, politician, professor and educator V.K.R.V. Rao (1908-1991), was organised by the state-run Institute for Social and Economic Change (ISEC) in the banquet hall of Raj Bhavan in the city centre.

Noting that the rating agencies have been "inconsistent" in their treatment of India and China, the CEA wondered why their analysts should be taken seriously at all, "given their track record of poor standards".

"The assessment of these rating agencies has been questioned in light of their failure to provide warnings in advance of financial crises and often their downgrades have occurred post-facto," asserted Subramanian.

Observing that the role of ratings agencies has increasingly come into question, the CEA said during the US financial crisis, questions were raised about their role in certifying as AAA bundles of mortgage-backed securities that had toxic underlying assets.

Similarly, questioning the opinion of experts on macro-economic policies, Subramanian said for various reasons, they (experts) feel the need to stay on the right side of power, be it the RBI (Reserve Bank of India) or the government.

"Before policy decisions are taken, the experts tend to express the views they think officials are likely to take. After policy actions, they try hard to endorse the decisions already taken," noted Subramanian.

Admitting that those in the government like him do not really benefit from the experts' wisdom, the CEA said it (their opinion) was a serious problem, because high-quality policy-making demands high-quality inputs and high quality debates.

Claiming that experts often held back their objective assessment, the advisor said they censor themselves and in public fora were insufficiently critical. Their criticism is also watered down to the point of being unidentifiable as criticism.

"In each case, experts could be Indian or foreign. As an insider, I am an eager consumer of the opinions of outsiders. Indeed, as CEA, I have read a fair amount of commentary by analysts and journalists. What I see is a clear pattern. And it is a worrisome one," added Subramanian.

Karnataka Governor Vajubhai R. Vala, ISEC Director Chandrakant and other dignitaries were present on the occasion.