JOIN USThe reports of credit rating agencies track the economic and financial strength of countries and serve as guides for investment.
They are primarily health check reports on national economies and provide the basis for financial institutions and investors to take their decisions. Some recent reports on India have become controversial.
A Goldman Sachs report which has upgraded India’s rating on the assumption of a BJP-led government coming to power after the general elections has invited criticism. The government has sharply reacted to it as it has seen it as an unwelcome judgment on the country’s politics or even an endorsement of political change.
Another agency, Nomura, has seen the possibility of political changes positively impacting the state of the economy. Yet another agency, Standard and Poor’s, has retained India’s credit rating at a low grade but has said that any upgradation will depend on the results of elections.
Since politics and economics and business are closely linked they cannot be seen as compartmentalised, especially when elections are in sight. So these reports need not be dismissed as predictions or expressions of support for one party or the other.
These are not opinion polls and are not meant to influence the voters. Some of these reports have also taken note of positive factors in the economic situation. Standard and Poor’s refrained from downgrading India because the external situation has improved as a result of some recent decisions. The rupee has now stabilised and the current account deficit (CAD) levels are better because of increase in exports and some curbs on imports.
A downgrade would have hurt the confidence of investors and made it more difficult for Indian companies to raise funds abroad. Whether India likes it or not, credit rating status given by international agencies provide the criteria for investors to take their decisions about the country.
Even with some signs of an improvement, there are serious issues like the high fiscal deficit, untamed inflation and slow growth which are troubling the economy. When the US Federal Reserve starts tapering off its stimulus measures possibly by early next year, that will pose another serious challenge to India and other economies.
The ability to take necessary economic decisions in the near future and after the elections is important for the improvement of the economy. The political strength of the government will be crucial in this. The credit rating agencies’ reports need to be taken only as a statement of this fact.