India Says Unfair Standards Keep its Credit Rating Below China's

Updated on
  • Rating stuck at BBB- even with strong growth: Finance Ministry
  • China has kept AA- rating at S&P despite climbing debt levels

Truck driver cleaning his truck while parked in a parking bay area of a highway dhaba on the national highway 8 to Delhi, India on May 15, 2016.

Photographer: Udit Kulshrestha/Bloomberg

India questioned the methodology used by global rating agencies, asking why Asia’s third-largest economy has been denied an upgrade even as growth and fundamentals improve.

“Rating agencies have inconsistent standards,” Arvind Subramanian, chief economic adviser at the Finance Ministry, told reporters in New Delhi Tuesday. India compares favorably with other emerging countries on metrics such as default risk, the government said in a report the same day, questioning why China has kept its AA- rating from S&P Global Ratings despite rising debt and slowing growth.

India has a “strong growth trajectory, which coupled with its commitment to fiscal discipline exhibited over the last three years suggests that its deficit and debt ratios are likely to decline significantly over the coming years,” the Finance Ministry said in its annual economic survey, released a day before Wednesday’s federal budget.

From 2009 to 2015, China’s debt ratio surged to about 205 percent of gross domestic product from 142 percent, while its growth slowed from more than 10 percent to 6.5 percent, the ministry wrote.

Source: Economic Survey

Source: Indian Government

The report said S&P upgraded China in 2010 despite an “ominous scissors pattern” of rising debt and slowing economic expansion. At the same time, India has remained stuck at BBB-, even though there’s been a “dramatic improvement” in growth and economic stability since 2014.

Analysts at S&P and Fitch Ratings didn’t immediately respond to e-mails seeking comment. A spokesman for Moody’s Investors Service declined to comment.

Budget Deficit

India is rated just one step above junk by S&P Global, Moody’s and Fitch, which cite Asia’s widest fiscal deficit as a drag on the nation’s sovereign rating.

Finance Minister Arun Jaitley will target a deficit of 3.3 percent of gross domestic product for the year ending March 2018 in Wednesday’s budget, according to the median estimate in a Bloomberg survey of economists. While that’s wider than the 3 percent goal set earlier, it is lower than the 3.5 percent shortfall estimated for the current financial year.

China’s ratings reflect our view of the government’s reform agenda, growth prospects and strong external metrics, S&P wrote in a Jan. 26 statement. “On the other hand, we weigh these strengths against certain credit factors that are weaker than what is typical for similarly rated peers.”

China’s debt surged to 264 percent of its GDP at the end of 2016, from 193 percent in 2009, according to data compiled by Bloomberg Intelligence. India’s total liabilities fell to 66 percent of GDP in the fiscal year ended March 2016, from 72 percent as of March 2009, according to central bank data.