Rating agencies too subjective, loaded against India, need reform: CEA
- The Chief Economic Advisor's (CEA) office in the Union Ministry of Finance calls for urgent reforms and transparency in sovereign credit rating processes.
Critique of Rating Agencies:
- Alleges methodologies of Fitch, Moody’s, and S&P heavily favor developed countries.
- It highlights over-reliance on non-transparent and subjective qualitative factors.
Impact on Developing Countries
- Qualitative parameters weigh more than actual macroeconomic fundamentals for developing countries like India.
- Despite India's economic growth, credit rating remains static at BBB- for 15 years.
Recommended Reforms
- Urges reliance on a country’s debt repayment history to determine 'willingness to pay.'
- Suggests focusing on authentic, verifiable information and using qualitative judgement as a last resort.
Call for Transparency
- Criticises the opaqueness of rating agencies' methodologies.
- Emphasises the need for transparency and reforms in the ratings process.
Bias in Ratings
- Claims subjective assessments favour advanced economies, leading to over 95% of credit rating downgrades for developing countries.
- Questions heavy reliance on World Bank’s Worldwide Governance Indicators (WGIs) for determining governance and institutional quality.
Prelims Takeaway
- World Bank
- Rating Agencies