Why are we bothered about the rating agencies?
Is it a “foreigner” perception which is ingrained in most Asians?
That’s the only thought which comes to mind when we read the Govt is holding back on its stimulus package because it is worried about a sovereign rating downgrade when the fiscal deficit deteriorates further.
What is the point of that rating in today’s time? Keeping people alive, creating jobs, getting the economic running and doing whatever it takes is all that should matter.
Today morning, Moody's Investors Service said that the negative outlook on India's rating reflects increasing risks that GDP growth will remain significantly lower than in the past and the credit profile will face further pressures. It has also hinted at weaker policy effectiveness to address economic and institutional issues.
Moody’s rating on the government of India is currently Baa2 with negative outlook – this was downgraded from stable in November’19. Did that really impact us? Jio has got foreign investment even in these dark times; what does that mean? If there is an opportunity, companies will come calling.
For the first time since 1989, Moody’s Investors Service cut its rating on China’s debt in 2017. Moody’s reduced the rating to A1 from Aa3 and changed the outlook to stable from negative. But did that really change anything for China?
And really, what is the sanctity and credibility of these rating agencies? We have time and again raised this question. After the 2008 crash, not a single rating agency was found guilty, so what credibility are we talking about? Also remember, most of these agencies, give a rating much after the world has discounted the facts – it is always behind the curve.
Rating agencies are like up there on a pedestal; no one dare touch them. And they have been taking umbrage in the fact that their ratings are “opinions” and it is all about freedom of expression and this defense for so many years cannot just be pulled down. But the very logic of these rating agencies work comes into question. Even though the rating agencies vouch for “objectivity” it obviously loses that objective many times.
Post the 2008 collapse most banks and trading floors have stopped depending on official bond ratings. In fact, BlackRock, one of the largest investors of US Federal bonds does its own analysis and does not rely on these rating agencies. Just as banks have stopped relying on Libor, these rating agencies have lost their relevance long time ago. They are mere “technicalities”.
And to think that we Indians and the Indian Govt worry about what S&P and Moody’s or Fitch say? But the good part here in India is that at least that fear of “international image” gets the Govt working.
Post this pandemic, every country’s economy will be in shambles. So lets not worry about any rating. Let the Govt worry only about India and what we, the Indians, think is the right thing to do.