India's credit-worthiness, poverty level, comparative position in several other indicators and ability to protect against environmental hazards are all decided by outside agencies, which have no independent means to judge us other than data fed by our own agencies within the country. If existing organisations are irreparably incompetent, new ones should replace them fast
Last week rating agency Moody’s raised India’s outlook to ‘positive’ from ‘stable’ without altering the country’s investment grade, which remains at the last rung at Baa3. The rating agency said that, “India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates. Moody’s expects these structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India’s growth higher than that of its peers over the rating horizon”. This gave comfort to India’s Chief Economic Advisor Arvind Subramanian who said ‘the upgrade validated the direction of Centre’s (Indian government’s) reform programme’ and expressed hope for a bump up in India’s rating. According to him, “It confirms something that we have been saying for some time now that the growth prospects and the macro-economic prospects for the economy are improving.”
India is a victim of foreign domination even today when it comes to assessment of the country’s self-esteem. Our credit-worthiness, poverty level, comparative position in several other human development indicators and ability to protect against environmental hazards are all decided by outside agencies, which have no independent means to judge us other than data fed by our own agencies within the country.
It is comforting to see that a change in approach in Delhi through various initiatives including the effort to promote slogans like ‘Make in India’ acceptance of the need for infusing professionalism in governance and better financial sector management have started yielding results.
Successive governors at the Reserve Bank of India (RBI) have expressed their concern about reliable current data to base their policy decisions. These are areas where perceptible improvements can be made without ‘huge’ financial investment.
Now that National Institution for Transforming India (NITI) Aayog has relatively less responsibilities, it could be entrusted with the task of making existing organisations responsible for compilation of statistics and rating the country in relation to other countries with reference to different parameters factoring in purchase power parity and aggregate resources availability and institutions like banks using internationally acceptable standards. If existing organisations are irreparably incompetent, new ones should replace them fast.
Global rating agencies have a habit of running with the hare and chasing with the hound! Moody’s capsuled its own positive note with a warning that India’s rating can be upgraded only if evidence emerge in the coming months that efforts to enhance growth and stabilise economic and institutional reforms are succeeding. There will be a downgrade, if economic, fiscal and institutional strengthening appears unlikely, or banking system metrics remain weak or balance of payments risks rises, it said. Such stances, which are regular ingredients in ‘global’ rating agencies, prompted me to make the following averments a couple of years back:
“…Time is opportune for India to think in terms of setting up a rating agency of international standard, which will understand the country and advice stakeholders about the health of domestic financial institutions and provide crucial input to the financial institutions and governments abroad with which India has dealings. Agencies like Standard & Poor’s (S&P) and Moody’s are doing their work within their limitation and even they would be benefited if an internationally acceptable rating agency comes into being in India.”(Page 15, Banking, Reforms & Corruption by MG Warrier).
IMF view
In response to a recent observation by the chief of International Monetary Fund (IMF) while in India, to the effect that ‘when adjusting for differences in purchasing prices between economies, India’s GDP will exceed that of Japan and Germany combined. Indian output will also exceed the combined output of the three next largest emerging market economies-Russia, Brazil and Indonesia’,
I had commented that ‘India’s toiling masses, entrepreneurs and the availability of resources within the country have not changed overnight and what forced some ‘celebrities’ and international rating agencies turn positive on India was the prevailing confidence of Indian people, infused by the political and financial sector leadership provided by Prime Minister Narendra Modi and RBI Governor Dr Raghuram Rajan.
In this context, I had recalled the following stanza from Gita:
“Uddharedaatmanaatmanam Naatmanamavasaadayet
Aatmaiva hyatmano Bandhuraatmaiva Ripuraatmanah”
(One should lift oneself by one’s own efforts and should not degrade oneself; for one’s own self is one’s friend, and one’s own self is one’s enemy.)
(Bhagavadgita, 6.5)
Aid and poverty alleviation
Misleading comparisons are not a unique feature of releases from rating agencies. Data usually is doctored, edited, or misquoted while presenting poverty figures or while preparing documents to make presentations on social responsibility initiatives. Just to give one example, the Gates Foundation 2014 Annual Letter mentioned the names of 11 countries, which were former recipients of foreign aid that have grown so much that they receive little aid today. A cross check showed that the 11 countries listed as former recipients of aid together had a population of just 51 crore and about 25% of this population under poverty line.
Back in India, (a country with a population of 125 crore of which 30% still remain below the poverty line), NITI Aayog has taken a stand not to estimate its own poverty line. Still, poverty elimination (as has been achieved only in Singapore with a population of 56 lakhs on this part of the globe) there is a need to have a nationally accepted method to arrive at poverty line- even if the line for different geographical regions within India may vary- and that method having the sanction of NITI Aayog and GOI. This is because several government schemes for poverty alleviation (now poverty elimination) relate the eligibility criteria to poverty line.
International comparisons, fear of loss of image, if the number of those below poverty line goes up during a particular period, total disconnect of poverty line or comparable indicator for different countries with purchasing power parity and several other constraints make poverty estimation highly subjective and sometimes prejudiced in India. Economists and consultants help policy makers in such situations by creating confusion with figures. There cannot be a better method than the one based on spending capacity and purchasing power of the rupee.
Once NITI Aayog decides on the poverty line for the purpose of extending benefits under central schemes, some agency should estimate and publish information about Indians living below poverty line and proportion of the population with (a) capacity to spend double the expenditure ceiling for poverty line (b) capacity to spend four times the ceiling (c) capacity to spend eight times the ceiling and (d) others. Such estimation will help policy makers to revisit some of the concepts on which poverty alleviation and financial inclusion efforts are based.
Epilogue
It is agonising to see the dependence of the Indian elite, which waits for a Prime Minister to speak from the ramparts of Red Fort to take cleanliness and toilet facilities for all seriously or to move forward in the direction of indigenous minting of coins or producing quality paper and ink inside India for printing currency notes. Successive RBI Governors have expressed their concern about reliable current data to base their policy decisions. These are areas where perceptible improvements can be made without ‘huge’ financial investment.
Now that NITI Aayog has relatively less responsibilities, this body could be entrusted with the task of making existing organisations responsible for compilation of statistics and rating the country in relation to other countries with reference to different parameters factoring in purchase power parity and aggregate resources availability and institutions like banks using internationally acceptable standards. If existing organisations are irreparably incompetent, new ones should replace them fast.
(
MG Warrier is former general manager, RBI, Mumbai and author of the 2014 book “Banking, Reforms & Corruption: Development Issues in 21st Century India”.)
Rating whether internal or external, is a function of data and it is a prospect depending on a series of assumptions and models. The country is at a point of inflexion yearning for stability with positive outlook for future.
Even when the call for cleanliness came from the ramparts of Red Fort, there are a number of panchayats, municipalities and corporations unable to take forward the initiative, and in many places dwarfing the citizen's response to the call.
Information hunger has overtaken the belly hunger. Measure of poverty also needs to undergo change. NITI AAYOG has to redirect its focus on scanning the several economic and physical data and confirming it with sample checks continually. In a country with such vast expanse and diversity, reliable sample check is expensive but has to be taken up seriously.