Global rating agencies are like restaurant critics, says Bhagwati

Global credit rating agencies act like restaurant critics commenting on the food quality without any liability, said internationally acclaimed economist Jagdish Bhagwati.

The agencies also do not have enough economists to pass jugdements on sensitive issues like sovereign risks, he said. “I know they (rating agencies) think like restaurant critics saying the food is good or bad and they are not liable for anything,” Bhagwati said observing the rating actions often have far-reaching implications for countries.

“I personally think there should not be such services because they really create impossible situations for many countries. They are not even like the International Monetary Fund (IMF) or World Bank which at least have huge number of economists and so on. They have just minor operations actually,” said Bhagwati, Professor of Economics at the Columbia University.

Any downgrade will impair the ability of Indian corporates to borrow, he said, when asked about the threat of the global agency Standard and Poor’s (S&P) to lower India’s rating to junk grade.

S&P in its report on October 10 had said that there was one-in-three likelihood of rating downgrade for India in 24 months if “the country’s economic growth prospects dim, its external position deteriorates, its potential climate worsens, or fiscal reforms slow”.
Fitch had also talked about the possibility of lowering India’s sovereign rating.