Brazil vs. India
3-notch Sovereign Rating Differential?
I get the affirmation of the ratings and outlook, but y’know I was just looking at Brazil vs. India lately and they have some similarities like woeful public finances, strong external finances, deep domestic markets, floating currencies, worrying populist leaders and functioning, albeit often dysfunctional, democracies (but look who’s talking on the latter, I live in the US).
Their differences are marked too, but do they warrant a full category (3-notch) rating differential in favor of India? Crossing the investment grade divide no less? BBB-/N vs. BB-/N? I am doubtful about that, though ratings inertia might be partially responsible.
India is so much poorer, its banks weaker, and its response to the pandemic arguably less effective — in terms of both vaccinations and India’s inability to reach the poor as effectively as Brazil has, thanks — to be honest — to Lula’s having laid the groundwork with Bolsa Familia’s conditional cash transfer program, lauded worldwide and being rebranded by President Bolsonaro (whose ideology opposes government intervention), so he can get re-elected next year.
What’s more, Brazil lacks the geopolitical and domestic political flashpoints that India has in spades. Brazil’s fiscal anchor — the expenditure ceiling — has been more effective since 2016 than India’s vague commitments to targets, albeit Bolsonaro is relaxing the ceiling because he is behind Lula in the polls.
Brazilian democracy might just bounce back better than India’s, given PM Modi’s dominating and divisive Hindu nationalism amid a weakened Congress Party (in perpetual decline?) At least one can say that Brazilian democracy is more competitive, which, if such competition doesn’t cause gridlock, can yield a more robust policy debate and less complacency.
I dunno, am I missing something?
Oh yes, economic growth. Look, that’s a big plus for India — I don’t deny that. It is impressive, backed by high savings / investment, but worth 3 notches? Part of that is the easy phase of going from being a poor to a middle income country, while Brazil is already middle income (3.5x India’s per capita GDP). Brazil has heavy productivity problems and is commodity-dependent no doubt, and India has impressive tech-related services exports and other things going for it growth-wise, but 3 notches?
And I don’t believe anymore the World Bank’s WGI government effectiveness score differential of 30 points in favor of India — 30 points! — given Brazil’s robust pandemic response, and quicker reversion to lower post-pandemic deficits. The difference between the glowing terms the IMF used to describe Brazil’s pandemic response and its commentary on India in the recent Article IVs (September-October 2021) was palpable.
Just sayin’! Food for thought at the very least.