Certain performance parameters guide the rating of institutions and countries by global credit rating agencies. That helps investors decide whether a region is creditworthy. But these agencies also make mistakes. Post-Lehman, they failed to flaw many reckless banking institutions. Standard & Poor recently downgraded the US which was a controversial decision. It also mistakenly suggested that it had trimmed France’s sovereign rating. The second mistake strengthened the European Commission’s call for a tighter leash on the rating agencies. Moody’s recent lowering of the outlook on India’s banking industry from stable to negative is also open to question. Only the following day, S&P rated the sector as a ‘low-risk’ one. India’s finance ministry understandably wants the country’s sovereign rating to be upgraded by agencies including Moody’s.
India has a stable democracy, a fast expanding economy, a high savings rate, good foreign exchange reserves and robust capital markets. Its growth rate is high compared to that in other countries. Its youth comprise a large chunk of the population. The entrepreneurial middle class is burgeoning. However, its reform policy-tax reform or multi brand retail FDI-is somewhat nebulous. Petrol price deregulation, land reform and sectoral liberalisation are limping alone. Infrastructure which is the bed-rock of industrialisation is developing at a snail’s pace. A solid fiscal balance sheet is also not there to invite investors. Above all, there is the shadow of a scorching rate of inflation. Whatever may be the ratings by credit agencies, our national economic policy needs to be revamped.
