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Economic Survey 2020-21: Finance Minister raises questions on the way credit rating agencies say, unite developing countries

Economic Survey 2020-21: Union Finance Minister Nirmala Sitharaman suggested all the developing countries to come together so that the partisan behavior of global rating agencies can be dealt with. (Representative Image)

Economic Survey 2020-21: Union Finance Minister Nirmala Sitharaman, while presenting the Economic Review 2020-21 in Parliament on 29 January today, said that the sovereign credit rating should be more transparent and it should include the basic elements of the economy. The Union Finance Minister said that in the history of sovereign credit rating so far it has not happened that the fifth largest economy in the world has been given the lowest category for investment (BBB / BAA3). In this case, China and India are exceptions, that is, these two big economies have been given a low rating by the global credit rating agency. Low ratings negatively impact FPI flows.
The Union Finance Minister said that the Sovereign Credit Ratings Methodology should be improved so that it can present the true picture of the economy. He suggested all the developing countries to come together so that the partisan behavior of global rating agencies can be dealt with. The Economic Review suggested that India’s financial policy should not be limited on the basis of biased ratings, but should be focused on development.

Correct picture of economy not presenting rating

India’s sovereign credit rating does not reflect the real state of the economy. The country has been given a lower rating than the effect of the sovereign credit rating of various factors. These factors include GDP growth, inflation, government debt (as a percentage of GDP), current account money (as a percentage of GDP), short-term foreign debt (as a percentage of foreign exchange reserves). ), Foreign exchange reserves adequate ratios, political stability, rule of law, control of corruption, protection of investors, ease of doing business and failure to meet sovereign accountability. This situation is true not only for the present but also for the last two decades.

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Appeal from developing countries to come together

The Finance Minister said that the rating does not accurately reflect the current state of the country’s economy. Several recent changes in the sovereign credit rating had no adverse impact on the indicators of the economy, such as the Sensex returns, foreign exchange rate and income from government securities. The review noted that sovereign credit ratings may affect equity and debt FPI flows in developing countries. This can make the crisis deeper. In this situation, all the developing countries have been called upon to come together to end this bias related to the sovereign credit rating system and make it more transparent. India has raised the issue of credit rating in the G20.

Rating advocacy based on ability to repay debt

Credit rating measures the probability of non-payment and hence the ability and willingness of the borrower to fulfill their accountability. The Union Finance Minister said that India has been successful in paying the sovereign debt. India’s debt repayment capability can also be determined on the basis of small foreign debt and large foreign exchange reserves, through which the short-term debt of the private sector and the entire sovereign and non-sovereign debt of India can be repaid. . India’s total sovereign foreign debt as a percentage of GDP by September 2020 is only four percent.

India has enough foreign exchange reserves

Currently, India’s foreign exchange reserves are $ 58424 million (Rs 42,56,758 crore). This figure (as of 15 January 2021. India’s foreign exchange reserves as compared to India’s total foreign debt (including private sector debt) is $ 55620 million (Rs 4052459.30 crore) (September 2020). India’s huge foreign exchange The reserves show the repaying capacity of the country. According to the economic survey, India is like a company whose debt is negative and whose ability to pay is zero.

Nisha Chawlahttps://www.businesskhabar.com/
She is an expert in Banking, Finance and working with an international bank. She sharing her ideas and knowledge with Business Khabar.
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