Last two weeks were full of action and expectations about India’s sovereign rating. While Moody’s raised the rating by a notch, Standard & Poor’s retained its rating with some cautionary note on overall fiscal deficit.
It is natural for the administration to always seek more than what the rating companies are willing to give. Prime Minister Narendra Modi’s government is not the first one that sought a higher rating even when things were not so rosy.
Governments do demand a higher rating. One such strange time was September 1990. It was not only a time when the economic parametres were weakening, but political events and several such factors were also hanging heavy over the nation’s head.
When Vishwanath Pratap Singh was the Prime Minister, it was the job of C Rangarajan, the then deputy governor at the Reserve Bank of India, and a finance ministry bureaucrat, YV Reddy, to convince the raters that India needed a higher rating.
Coming from New Delhi, Reddy was quite enthusiastic. That was the time when the nation faced multiple challenges. The establishment had tussle with multiple business houses that had the potential to kill whatever little entrepreneurship was prevalent in the socialist state with the Licence Raj.
It just did not stop there. There was a threat of war from Pakistan. The daughter of a Cabinet minister was kidnapped by terrorists in Jammu & Kashmir.
The issue of Ram Mandir at Ayodhya was gathering momentum, and the topic of reservation for backward castes through implementation of the Mandal Commission was also raging.
How did these government representatives deal with the rating companies? Rangarajan had some sagely advice to Reddy. “Venu, we should be sure of facts,” Reddy writes in his memoirs ‘Advice & Dissent’. “We should analyse the situation. We can give a positive twist, but we cannot afford to be overenthusiastic, and excessively optimistic in our presentation.
Remember, our own professional and personal credibility could be at stake. We may have to deal with these agencies in the future.” When the rating was announced, it was investment grade triple B and the duo were not unhappy.
What followed was more important – a rating downgrade within a few months because of the balance of payments crisis and fiscal deficit. Subsequently, the state had to pledge gold to save its prestige in international arena.
Reddy has this to say on Rangarajan’s advice: Never compromise long-term professional credibility while pursuing advocacy that the compulsions of immediate circumstances demand.
Source: economictimes.indiatimes.com