ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Politics and Economics of Credit Rating

Rather than being carried out in an objective manner, the credit rating exercise has been used as an instrument to persuade the local bodies to follow market-based financial discipline.

One significant development in the context of investment in infrastructure and amenities in urban areas during nineties is the emergence of credit rating institutions. With the financial markets becoming global and competitive and the borrowers’ base increasingly diversified, investors and regulators prefer to rely on the opinion of these institutions for their decisions. The rating of the debt instruments of the corporate bodies and municipal enterprises are currently being done by institutions like Information and Credit Rating Agency of India (ICRA), Credit Analysis and Research (CARE) and Credit Rating Information Services of India Limited (CRISIL), etc. By the end of 1999, 20 cities and urban authorities had already been rated by these agencies and the cases of another 15 were being processed.

CRISIL is the first institution to enter the field of rating the municipal bodies or their investment projects. It has been receiving technical support under the FIRE (D) project sponsored by USAID for the development of methodology for credit rating as also assisting the local bodies in urban planning. As information regarding the norms and procedures of CRISIL’s functioning has been available for sometime now, often the discussion on the future of credit rating in the context of urban development takes place largely based on the experience of this agency. This is the case also with respect to the present study.

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