Rating agencies too wary, India deserves upgrade: OECD

01 March 2017

In a much-needed shot in the arm, the Organisation for Economic Cooperation and Development (OECD) on Tuesday pitched for a rating upgrade for India, saying global rating agencies had become "overtly cautious" and conservative in not revising India's rating for last 14 years.

Angel Gurria, secretary general, OECD"I believe India deserves a better rating," said Angel Gurria, secretary general of OECD.

 He said the rating could be changed to "neutral" and then "positive". "With the kind of reform programmes that you are putting out they can't fail to notice so this should have been done."

On why India's rating has not been changed in the last 14 years despite it being a very different country in this time, Gurria said, "Well, let me try a couple of considerations. First what do the Rating agencies do? Rating agencies calculate the likelihood of default on a borrower's credit. India is in investment grade, in the lower rung."

He further said, "Do I believe that the rating agencies today should increase India's rating? Absolutely. And I think they will."

He added that the rating agencies are cautious because "they got it so wrong with the (global economic) crisis".

"They were part and parcel of why the crisis actually happened. By putting all those AAA ratings, on those banks full of mortgages ... and we got the biggest ever crisis in our lifetimes," Gurria said.

The OECD secretary general gave an analogy of the proverb once bitten twice shy when he said, "We have a saying in Mexico that when you burn yourself with milk then you would be blowing even on the yogurt, you don't wanna get burnt again."

Gurria said rating agencies have become "so overtly cautious" as they "don't want to be caught being overly aggressive".

 "Now they are erring on the other side. Because they were too exuberant and now they are conservative. And of course the better place is the middle," he said.

India has often criticised the methodology used by rating agencies like Moody's and pushed aggressively for an upgrade. Rating agencies on the other hand cite concerns over the country's debt levels and fragile banks for their refusal to upgrade.

The government feels the rating agencies have not accounted for a steady decline in the India's debt burden in recent years and have ignored its levels of development when assessing their fiscal strength.

The Economic Survey too has questioned the complex methodology saying if per capita GDP is a key to upgrading sovereign rating, as suggested by Standard & Poor's while maintaining status quo on India's rating in November 2016, then poorer countries might be provoked into saying, "Please don't bother this year, come back to assess us after half a century."


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