Here it is bit modified and extended.
After India, now China has taken on the global credit rating
agency Moody's for downgrading its credit ratings. Moody's has degraded China's
sovereign rating by one notch, from AA3 to A1, first for China in 28 years.
Chinese economy had not seen a rating downgrade from 1989 even if its economy
has started slowing down for past some years. But China could not fathom it.
According to a Global Times report, the Chinese Finance Ministry has said that
the "rating downgrade by the Moody's was based on inappropriate
methodology".
And its arguments are similar to India's: "Moody's has
overestimated the difficulties faced by the Chinese economy, while
underestimating the capabilities of China to deepen side-supply reforms". India,
too, has argued that credit rating agencies overestimate the challenges faced
by the Indian economy, and underestimate the nation's capabilities - especially
in light of the economic reforms initiated in the last three years.
Moody's has warned China for its slowing economy and rising
debt and has based its downgrade on these parameters, "The downgrade
reflects Moody's expectation that China's financial strength will erode
somewhat over the coming years, with economy-wide debt continuing to rise as
potential growth slows".
India has also highlighted the concern of 'inappropriate
methodology' being used by the credit ratings agencies. According to a Reuters report from December 2016, "India had criticised Moody's ratings methods
and pushed aggressively for an upgrade." According to the report, India's
Finance Ministry, in a series of letters and emails last October, raised
questions over Moody's rating methodology which was ignoring India's reducing
debt burden and sustained impressive growth. But Moody's rejected India's
claims raising concerns over India's debt burden and bad loans worth $136
billion saying "not only was India's debt burden high relative to other
countries with the same credit rating, but its debt affordability was also
low".
Moody's logic has been, though India's debt-to-GDP ratio has
come down to 66.7 per cent from its peak at 84 per cent in 2003, interest
payments take away one-fifth of government's revenue. Also, as per the report,
India's revenues at 21 per cent of GDP are considerably lower than the median
income of the countries with the BAA ratings that is at 27.1 per cent. Moody's
further contended that "a resolution to the banking sector's bad loan
problems was "unlikely" in the near-term".
Despite the concerns raised by India, Moody's in November
2016, Moody's went on affirming India's BAA3 rating with a positive outlook,
ignoring Economic Affairs Secretary Shaktikanta Das' arguments of "stable
external debt parameters and the slew of reforms introduced in the realm of
foreign direct investment", the Reuters report quoted from his letter
written to Moody's.
And not only Moody's, two other major credit ratings
agencies, Standard & Poor's and Fitch have also refused to budge on India's
concerns. Fitch's BBB- rating, that is the lowest investment grade rating, has
been in place since August 2006 and S&P's BBB- rating from January 2007.
These three agencies, which control 95 per cent of the
market, have been so obstinate in refusing India's concerns that India's Chief
Economic Advisor Arvind Subramanian had to term their approach as 'egregious
and compromised'. Subramanian said, "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). He called
the assessment of the international ratings agencies as " one of the most
egregious examples of compromised analysis".
©SantoshChaubey
