Fitch’s India rating

In August 2011, S&P downgraded America’s long-held triple-A rating, prompting a global sell-off

The global credit rating agency Fitch recently downgraded India’s credit outlook to negative. According to the agency, India faces an ‘awkward combination’ of slow growth and elevated inflation, as well as structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms. The agency also said India’s medium to long-term growth potential would deteriorate if further structural reforms were not hastened.

The Indian Government chose to downplay these observations, claiming that they are based on old data. India’s Chief Economic Advisor Kaushik Basu said there is a herd mentality among credit rating agencies, and such an announcement was to be expected. Just a week earlier, another agency, Standard & Poor’s, had warned that India may be the first of the BRIC bloc whose sovereign credit rating slips below investment grade. The agency cut India’s outlook to negative in April.

Fitch Ratings is, along with Moody’s and Standard & Poor’s, part of the ‘Big Three’ credit rating agencies. They were criticised for their favourable pre-crisis ratings of insolvent financial institutions like Lehman Brothers, as well as risky mortgage-related securities that contributed to the collapse of the US housing market.

Recently, the agencies have been taking tough stands. In August 2011, S&P downgraded America’s long-held triple-A rating, prompting a global sell-off. Since the spring of 2010, one or more of the Big Three relegated Greece, Portugal and Ireland to ‘junk’ status—a move that many EU officials say has accelerated a dangerous Eurozone sovereign debt crisis. Both the US and Europe have also taken steps to regulate the three agencies and ensure more transparency.

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