By Arré Bench Nov. 17, 2017
Yay, we’ve got a credit rating upgrade! But first, what is a credit rating? Is a BAA3 grade better than BAA2?
ndia’s rating on Moody’s, an American credit rating agency, has gone up today and you’ve nodded in approval and posted about it on FB. But you secretly know that you wouldn’t know a credit rating if it came and hit you in the face. Don’t worry, we’ve got you covered.
First, think of a credit rating agency like a class teacher of the financial world and the various countries, its students. India is a student, America is a student, Japan is a student. Moody’s regularly issues report cards of how well students have done during the year. (India is all of us, an average student.)
At times, certain students do better than they did last year. At times, performances of certain students go down from previous year. At times, the students are not happy with the marks they’ve been given by the teacher and it creates controversies. It’s like any chaotic class.
What is the performance of the students judged on?
It is based on their credit rating.
Thanks, genius. What the hell is a credit rating?
Let’s say Vijay Mallya is in your class and he asks if you have an extra pencil you could lend him. He forgot his pencil box at home (so he says). You do have extra pencils in your box. You could say yes, you could say no. The question that determines whether you would lend him your pencil is, “Will he return it?” Yaar, card. We’re now right now he can’t even return to India, how will he return your pencil. You should probably avoid.
But what if, say, Rahul Dravid asked for your pencil. He’s a guy you can trust, he’s the very definition of dependability, he’s literally called The Wall. You’d definitely lend him your pencil, even your favourite Apsara one. How do you know that? Because Dravid’s report card is lined with straight A’s.
The Moody’s report comes on the back of positive news about India’s economy, kick-started by a 30-place jump in World Bank’s ease of doing business rankings.
The Moody’s report card basically tells you how probable a country is, of returning your pencil. In fact, Moody’s is basically the RD Sharma of the financial world: a reputed teacher that the world relies on. The better your rating, the more people will be willing to lend their pencils to that country.
If you land an A, the chances of your returning the pencil are almost certain (but it also means everyone thinks you’re smug bugger and you probably eat your dabba alone). B means you may or may not return the pencil; while C, which is a vulnerable or weak rating, lands you in the same bracket as Vijay Mallya. No one wants a C on their report card: It means being shamed in front of the whole class and at the PTA meeting.
For the first time in 14 years, Moody’s has upgraded India’s report card. We’re now positiveat BAA2 from BAA3 (yes, it’s a bit like those finicky ICSE grades), and it’s a positive sign. It means we are now more trustworthy, and the world can afford to lend us their pencil. Our outlook has been upgraded from “positive” to “stable”, which is basically desi code for “ab ladka settle ho gaya hai”.
The Moody’s report comes on the back of positive news about India’s economy, kick-started by a 30-place jump in World Bank’s ease of doing business rankings. This is reflecting in the surge of the stock market and the bank and equity markets. But if there’s something school has taught us, it is that good marks need to be backed up every unit test. Let’s keep our pencils sharpened, India.