04/11/2015 8:19 AM IST | Updated 15/07/2016 8:25 AM IST

Moody's Infamous Modi Report: Nothing Official About It

Indian Prime Minister Narendra Modi walks during the opening of the India Africa Forum Summit at the Indira Gandhi sports complex in New Delhi, India, Thursday, Oct. 29, 2015. More than 40 African leaders are in New Delhi to attend the IAFS 2015, preceded by meetings of trade and foreign ministers from nearly all 54 African nations, to explore how Indian investment and technology can help a resurgent Africa face its development challenges. (AP Photo/Bernat Armangue)

"Moody's to Modi: Rein in BJP members or risk losing global credibility" claimed the sensational and disturbing headline emblazoned across the websites of almost all major Indian language newspapers on 30 October. The same (or similar) headlines appeared in The Indian Express, The Times of India, The Hindu and the Hindustan Times.

This was undoubtedly a stinging rebuke to the Modi government from the premier rating agency in the world; a terse censure that depicted India in a poor light and was certain to drive away investors; a categorical confirmation from an authoritative foreign source of the global cognizance of India's supposed growing intolerance.

With such unanimity in reporting, the authenticity of the news item appeared irrefutable and its significance humungous. However, when I started reading the text of these articles, doubts began to creep in.

"[W]hat was being passed off as a reprimand from Moody's was fallacious; a subtle play on words intended to convey a misleading impression."

The Indian Expressbegan: Growing voices in the country against rising intolerance, on Friday, found an echo in Moody's Analytics -- a division of Moody's Corporation -- as it called for Prime Minister Narendra Modi to keep his party members "in check or risk losing domestic and global credibility..."

Was Moody's Analytics the same as Moody's? Research indicated that it was not. Moody's Analytics is a subsidiary of Moody's Corporation separate from Moody's Investors Service, the global rating agency. So what was being passed off as a reprimand from Moody's was fallacious; a subtle play on words intended to convey a misleading impression. One thing became clear: this was not an official report from Moody's Investor Services, the global rating agency, period.

Further attempts to locate the primary source revealed that the report in question was not a report at all but a commentary by an associate economist at Moody's Analytics named Faraz Syed working out of Sydney. The supposedly earth-shattering report pasted all over the place by Indian newspapers was not even visible on the main Moody's Analytics web site. It was found on an auxiliary microsite called "Dismal Scientist" under the commentary section.

The article itself dealt primarily with financial metrics and was divided into four subsections: a) Some favorable developments b) But external headwinds grow, c) Fading financial sentiment and d) The politics need to improve. Embedded in the last section was the much proclaimed stricture bandied around by our newspapers as well as another important observation that the Indian opposition was obstructionist (a reference conveniently overlooked by our media).

I reproduce the pertinent parts:

"Prime Minister Narendra Modi's right-leaning Bharatiya Janata Party does not have a majority in the upper house to pass crucial reforms and has been met with an obstructionist opposition.

But in recent times, the government also hasn't helped itself, with controversial comments from various BJP members. While Modi has largely distanced himself from the nationalist gibes, the belligerent provocation of various Indian minorities has raised ethnic tensions...... Modi must keep his members in check or risk losing domestic and global credibility...."

The main Moody's web site does incorporate Faraz Syed' s comments in its Weekly Forecast Report for 29 October, but notably completely omits the last section titled "The politics need to improve". I reproduce that excerpt in its entirety so as to leave no room for doubt:

"The Indian economy -- likely growing at around 7.3% y/y in the September quarter -- remains below potential, which we believe is around 9%-10%. But closing India's negative output gap is difficult: external headwinds are blowing stronger while the government has failed to deliver promised reforms.

We believe GDP will grow at 7.6% this year and in 2016. Key economic reforms could deliver greater potential GDP, as they would improve India's productive capacity. These include; the land acquisition bill, a national goods and service tax, and revamped labor laws. We believe they are unlikely to pass through parliament in 2015, but there is an even chance of success in 2016.

Some favorable developments...

The Reserve Bank of India kick-started the recovery by cutting the repo rate by 125 basis points this year.

Earlier in the year, monetary transmission broke down as commercial banks passed only one-third of those cuts to customers. But positive signs are emerging; the State Bank of India--the nation's largest bank--cut its base lending rate earlier this month. Capacity utilization has been low across Indian industries this year. The capital expenditure pipeline is running dry. However, interest rate cuts should encourage investment, as will the lower inflation profile. India is also well placed for U.S interest rate normalization, and we believe the rupee will likely come out relatively unscathed thanks to RBI's bulging foreign exchange reserves stockpile. Some depreciation is expected, but it's unlikely to be as severe as the 2013 taper tantrum.

...but external headwinds grow

The slowdown in global growth will prove a major headwind for Indian exporters. India, although a relatively small trade partner to China will nonetheless be hurt by a drop in regional sentiment. The slower than expected U.S growth trajectory and sluggish Eurozone growth will drag on external demand.

Thus, the precipitous fall in exports from 2015 is expected to continue in 2016. The newfound stability in India's current account balance could come under renewed stress if global growth slows more. So far, lower Oil prices have buttressed the trade balance. But a rebound as oil supply rebalances could see the trade balance deteriorate.

Slower global growth is a downside risk to our outlook and the RBI is monitoring this closely. We believe the central bank will keep rates on hold for remainder of 2015, with a small chance of another cut early next year."

Note that there is no mention of Modi or any reference to intolerance in this excerpt. The fact that the main website chose to deliberately omit the controversial sections of the author's original article is proof that the institution does not concur with the commentator's political opinions.

So was this a deliberate and malicious attempt to mislead the Indian public and malign the BJP government by playing up a personal opinion expressed in an obscure commentary as an official report from Moody's?

That is the million dollar question that cries out for an answer.

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