World Bank’s World Governance Indicators (WGI)

May 11, 2022

According to a presentation prepared in 2020, by the then Principal Economic Advisor in the Ministry of Finance, Sanjeev Sanyal, inputs that go into the making of the World Bank’s World Governance Indicators (WGI) are arbitrary.

What is the presentation about?

A presentation titled— “Subjective Factors that impact India’s Sovereign Ratings: What can we do about it?” — was prepared by the Ministry of Finance for internal circulation within the government to counter the negative commentary on India.
The 36-page presentation noted that around 18-26% of India’s sovereign rating is based on subjective factors and World Bank’s World Governance Indicators (WGI) is used as a proxy for these subjective factors.

What are World Governance Indicators (WGI)?

The Worldwide Governance Indicators (WGI) project reports governance indicators for over 200 countries for the following six dimensions of governance:

Voice and Accountability
Political Stability and Absence of Violence/Terrorism
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption

These aggregate indicators are based on over 30 individual data sources produced by a variety of survey institutes, think tanks, non-governmental organizations (NGOs), international organizations, and private sector firms such as Economist Intelligence Unit (EIU), Varieties of Democracy (V-Dem) Project and Freedom House, etc.

What is the concern of the Indian government?

According to the government, World Governance Indicators (WGI) is based on impressions from the Western press or small surveys of NGOs and a handful of academics, many of them do not even have an India expert.
Due to the negative commentary on India by these institutes there will be a drop in WGI scores.
This could downgrade India’s Sovereign Ratings.

Regarding which issues there was negative commentary in recent times?

Jammu and Kashmir Reorganisation Act of 2019, Citizenship Amendment Act, 2019, National Register of Citizens (NRC), construction of a Hindu temple at a disputed religious site, etc. were the topics on which there was negative commentary.

Which sovereign rating agencies downgraded India’s ratings and why?

On June 1, 2020, Moody’s had downgraded India from Baa2 to Baa3 (the lowest investment grade of ratings) and maintained a negative outlook.
On June 18, 2020, Fitch Ratings also revised India’s outlook to negative from stable, although it affirmed the rating at BBB-. Fitch said that relations with Pakistan are negatively affected by the repeal of the special status for Jammu and Kashmir and recent changes to the status of illegal immigrants based on their religion.

What should the government do to avoid negative commentary?

The government should reach out to these agencies, initiate continuous discussions, clearly spell out India’s reform measures and sensitize them on India’s internal matters.

What steps did the government take?

The government reached out to sovereign rating agencies. On October 5, 2021, Moody’s Investors Service raised the outlook on India’s sovereign rating to ‘stable’ from ‘negative’.

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