23 Dec 2023 : The Indian Express

Topic 1: Opacity doesn’t pay

Introduction: A recent paper by the Office of the Chief Economic Adviser has amplified the point about the “opaque methodologies” adopted by Credit Rating Agencies (CRAs) to arrive at sovereign ratings.

Indian economic growth and its sovereign rating

Between 2006 and 2022, India’s GDP at current prices has risen 3.6 times from $940 billion to $3.4 trillion and it has progressed from being the world’s 14th to the 5th largest economy.
The country’s foreign exchange reserves have also gone up from a mere $177 billion in end-2006 to $616 billion now.
Nor has India ever defaulted on its external debt obligations — including during the 1991 balance of payments crisis.
Yet, its sovereign credit rating was last raised to BBB- (the lowest investment grade) by S&P Global in January 2007 and by Fitch in August 2006.
The third credit rating agency (CRA), Moody’s, upgraded India’s credit from the lowest investment grade (Baa3) to the next level (Baa2) in November 2017, only to restore it to Baa3 in June 2020.

Consequences of Ratings

The ratings given by these agencies have significant consequences:

Investment: A high rating can attract foreign investments, while a low rating can deter investors.
Borrowing Costs: Countries with higher ratings can borrow at lower interest rates, whereas those with lower ratings may face higher borrowing costs.
Economic Perception: The ratings influence the global perception of a country's economic stability and governance.

Criticism of the methodologies of CRAs

Narendra Modi government has protested strongly. “Never in history has the fifth largest economy in the world been rated a BBB-,” as the 2020-21 Economic Survey noted.
A more rigorous recent paper by the office of the Chief Economic Adviser has amplified the point about the “opaque methodologies” adopted by CRAs to arrive at sovereign ratings.
The paper has rightly highlighted the reliance by these agencies on qualitative factors based on subjective assessment, as opposed to objective measures of a sovereign’s ability and willingness to pay its debts.
Good governance, democracy, ensuring citizen’s voice and accountability, rule of law, and control of corruption are desirable goals in themselves.
But the ability to discharge debts is ultimately a function of a country’s macroeconomic fundamentals: GDP growth, inflation, government debt-GDP ratio, fiscal and current account balances, external liabilities, forex reserve levels, and so on.
The paper has demonstrated that “governance indicators” explain roughly 68 per cent of India’s assigned credit ratings.
The fact that these indicators rely on perceptions and value judgments means any improvement in macroeconomic parameters would matter little when it comes to sovereign credit ratings.

What government need to do?

While that’s a sad commentary on the CRAs — being more transparent about their rating process would do enormous good to their credibility — it should not detract from India undertaking self-corrections or improvements on its own at least on two counts.
The first is re-emphasising fiscal consolidation: The current general government debt-GDP ratio of 82 per cent is higher than the 77.2 per cent of 2006 and the 66.4 per cent of 2010.
The second is data quality, on which legitimate questions have been raised, especially in the absence of any Census or household consumer expenditure survey results after 2011-12.
Both need to be accorded the highest priority by the government in power after May 2024.

Conclusion: The Chief Economic Adviser is right in critiquing credit rating agencies. But the country also needs to improve data quality.

Topic 2: Grand gesture, small details

Introduction: A true assessment of a country’s foreign policy has to take into account its attention to issues that go out of the public eye. Such an evaluation has to also focus on the response of states whose interests, a country believes, it is promoting.

India as the ‘Voice of Global South’

India has emphasised, over the past several years, its affinities with the Global South.
It has claimed that it is keeping the interests of developing countries front and centre in its positions on social and economic issues in multilateral contexts.
The Modi government especially stressed during India’s G20 Presidency that it was giving voice to the aspirations of the Global South.
For this purpose, it held a “Voice of the Global South” summit in January and again its iteration virtually in November.
These were noble efforts, for the disparities between the advanced and developing worlds are growing in the digital era.
And, as India straddles both worlds and joins the high tables where global rules are set, it wishes to signal that it will not turn its back on the interests of the developing countries.

The recent UNESCO’s VP position loss: a great Pakistani campaign or a lax Indian effort

With all this effort, it could be expected that it would secure the support of the Global South countries in elections, big and small, to UN bodies.
It was therefore surprising that, in an election held on November 24 for one of the Vice President’s positions for the Executive Board of the United Nations Educational, Scientific and Cultural Organization (UNESCO), Pakistan defeated it by 38 votes to 18.
Pakistan is currently in a mess. It is under a caretaker government and its economy is in tatters. It continues to be a centre of extremist ideologies and terrorism.
Yet, India lost the seat by a big margin.
The UNESCO Executive Board consists of 58 members which are divided into six regional groups to give equitable representation to countries from diverse regions in UNESCO bodies.
India is part of the 12-member Asia-Pacific group. The Vice-President’s position is not one of great consequence and an election for it takes place only if the group does not arrive at a consensus for it.
The Asia-Pacific group could not do so. Hence, under UNESCO rules, the entire 58-member Board voted. It would seem from Pakistan’s margin of victory that it managed to secure more support from developing countries than India.
India’s UNESCO delegation should have read the tea leaves of this election better.
This is not only because it was galling to lose particularly to a Pakistan in such dire straits, but also because it opens up questions, however indirect, on India’s efforts’ efficacy with countries of the Global South.

India and its pursuit of international cases

The Kim Davy case:

Another matter relates to Indian efforts to extradite Kim Davy from Denmark to India.
Davy was involved in the Purulia arms drop case of 1996, but there is no statute of limitation in criminal matters.
Davy has publicly acknowledged his involvement in breaking Indian laws.
Denmark’s executive and judiciary have treated India with disdain in the Davy matter.
At one stage, India had closed shop with Denmark till Davy was extradited to face the law in India.
However, over the past decade India not only normalised relations, but Prime Minister Narendra Modi visited Denmark in May 2022 for both a bilateral visit and an India-Nordic summit.
Danish prime ministers have visited India too. The premise of this opening up was that the Danes would act along with Indian law enforcement agencies to see that Davy was extradited to India.
Nothing seems to have been heard publicly from India on this matter.
In 2023, Danish Foreign Minister Lars Lokke Rasmussen told the media that when he had visited India as prime minister in 2019, he and the Indian leadership had decided that this was not a “political” but a judicial issue and that law enforcement authorities would deal with it.
He said that he had been informed that it was a “work in progress”.
Well, it seems that no progress has been made to get Davy to India.
Finally, Denmark must know that extradition is never only a judicial issue.

The Italian Marines case:

In the Italian Marines case, India accepted the International Tribunal’s Award which mandated their trial in Italy.
The Supreme Court put its seal of approval on this process in mid-2021.
While the families of the two Indians who had been killed by the marines were monetarily compensated, the question is whether the Indian Mission in Rome followed the proceedings against the marines in the Italian court.
It could not intervene in the Italian judicial process but it could have ensured that the Italian judicial system gave the case the care it deserved.
There is no public indication that the Mission was directed by Delhi to do so or that a Mission official attended court proceedings to indicate that India takes the deaths of its nationals seriously.
A Rome court acquitted the marines in June 2022.

Conclusion: Nations are judged not only through their large actions but also by how they act in small matters concerning their individual citizens or the breaking of their laws. Often, they are judged by their conduct in these as through their grand gestures and “forthright” statements.