The Modi government has released the Economic Survey 2020-21 today. The Economic Survey of this year has 10 chapters and is 353 pages long. The Survey talks about a range of topics including India’s prioritization of lives over livelihoods during the pandemic, which, as per the survey, will help India in posting better economic growth compared to regions that prioritized livelihoods (like the USA and parts of Europe) in the coming quarters.
The Survey also talks about the Ayushman Bharat scheme in chapter 9 which is titled ‘JAY Ho: Ayushman Bharat’s Jan Arogya Yojana (JAY) and Health Outcomes’. The Survey quotes Martin Luther King Jr., the American Civil Rights Activist, on health. The famous quote goes as, “Of all the forms of inequality, injustice in healthcare is the most shocking and most inhuman.”
The survey argues that the Ayushman Bharat Yojna helped the poor people of the country a great deal even during the pandemic. “PM-JAY is being used significantly for high frequency, low cost care such as dialysis and continued to be utilised without disruption even during the Covid pandemic and the lockdown. General medicine – the overwhelmingly major clinical specialty accounting for over half the claims – exhibited a V-shaped recovery after falling during the lockdown and reached pre-Covid-19 levels in December 2020,” reads the survey.
However, the most important chapter on the Survey is one on the prejudices of the credit rating agencies against emerging economies like India. The survey criticizes the low ratings of India and China, with historical data and references. “Never in the history of sovereign credit ratings has the fifth largest economy in the world been rated as the lowest rung of the investment grade (BBB-/Baa3). Reflecting the economic size and thereby the ability to repay debt, the fifth largest economy has been predominantly rated AAA. China and India are the only exceptions to this rule – China was rated A-/A2 in 2005 and now India is rated BBB-/Baa3. Do the fundamentals that supposedly drive sovereign credit ratings rationalise this historical anomaly? In this chapter, the Survey asks this important question and answers a resounding No!” reads the Economic Survey.
The Economic Survey argues that countries like India and China have very high debt repayability capacity given the high rate of growth, but the credit rating agencies, most of which are based in the developed markets, are prejudiced against the developing countries and keep their ratings low despite the data suggesting the contrary.
“As ratings do not capture India’s fundamentals, it comes as no surprise that past episodes of sovereign credit rating changes for India have not had a major adverse impact on select indicators such as Sensex return, foreign exchange rate and yield on government securities. Past episodes of rating changes have no or weak correlation with macroeconomic indicator,” reads the third chapter of the survey which is titled- Does India’s Sovereign Credit Rating reflect its fundamentals No!
Given the fact India’s macroeconomic fundamentals are among the strongest for any major economy in the world, the rating agencies must put the country in the top category. “Despite ratings not reflecting fundamentals, they can however be pro-cyclical and can affect equity and debt FPI flows of developing countries, causing damage and worsening crisis. It is therefore imperative that sovereign credit rating methodology be made more transparent, less subjective and better attuned to reflect economies’ fundamentals,” reads the survey.
The rating given by agencies is very important for the country because it affects a country’s ability to raise debt at a lower cost. Today countries like the United States raise debt at interest rates near zero while India has to pay above 5 percent interest rates, just because the rating agencies are prejudiced.