S&P claims its rating methods are transparent, consistent for all

03 Feb 2017 Evaluate

Reacting to Chief Economic Advisor Arvind Subramanian’s statement questioning the methodologies used by global rating agencies and slamming them for following inconsistent standards, the global ratings agency, Standard & Poor's (S&P) has claimed that its rating methodologies are transparent and consistent across the globe. The rating agency has said that they apply the same methodology consistently for sovereigns across the globe and India is no exception. It added their sovereign rating methodologies are transparent and are freely available on their website.

Arvind Subramanian had earlier said that global rating agencies have inconsistent and poor standards while rating India vis-a-vis China. He added that agencies have not taken into account government’s reforms initiatives such as FDI liberalisation, bankruptcy code, monetary policy framework agreement, GST and Aadhaar Bill, which is a ‘poor’ reflection on their credibility. He had said that S&P has rated China six grades above India and since 2010 it has held China's ratings steady despite economic growth slowing to 6.5 percent from 10 percent. In contrast, India's has moved in the opposite direction and growth has increased. S&P has a ‘BBB-’ rating on India with a stable outlook, while it has ‘AA-’ rating on China with a negative outlook. S&P had in November ruled out an upgrade in the country's ratings for some considerable period, citing low per capita GDP and relatively high fiscal deficit. The government debt to GDP ratio stood at 68.5 percent.

S&P has said that mostly, they spell out the broad mix of which factors that they look at in assessing sovereign credit, including in India's case the balance between fiscal consolidation and stimulating growth. On S&P’s rationale for higher rating on China, S&P director for sovereign ratings Kyran Curry said ‘If I can directly touch upon the comparison between India's ‘BBB-’ rating and China's ‘AA-’ rating with a negative outlook, I think this comparison is very useful but it is worth noting that China has a GDP per capita about five times greater than India and China's debt stock is only about 30 percent of GDP’. He added that it is also worth noting that because of China's much lower debt stock, its debt servicing cost is only 3 percent of revenue compared to 21 percent for India. So, these are the factors that underpin China's higher rating.

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