Skip to content

S&P Revises Outlook on India as it dings Congress and its policies (or lack of them)

The news Standards & Poors report is pointing to a lowering of India’s credit rating. Suggesting tha India may be the first BRIC country to lose the investment grade rating and is at an inflexion point, the report asks three questions.

  1. Are India’s years of rapid GDP growth over?
  2. Will India go backwards in its economic policies and undo some of the progress it made to liberalise the economy since the early 1990s?
  3. Is there a risk that economic liberalization might not just stall, but actually recede?

It details how the Government has indeed stalled opening up of the economy and either directly or indirectly thwarted higher FDI in the country including in Capital Intensive projects like the Steel plant by POSCO, Korean company.  The coming scenario it lays out is pretty dismal.  Now, it is not necessary that this is how the future will play out, but with the “Policy Paralysis” that is the new normal in the UPA Government, S&Ps future model may actually play itself out.

The combination of fiscal strain and lower corporate profitability could reduce both public and private sector savings rates in coming years. Lower savings would translate into lower investment and a higher current account deficit. The result would be either lower GDP growth or a higher external deficit that makes the country more vulnerable to external shocks.

The report lays a substantial part of the blame at the feet of the Congress party, it structure and its dismal lack of leadership.  The entire dynamics of Sonia Gandhi – unelected but all powerful, Dr. Singh – unelected, powerless, head of state, and the huge coterie of self-serving powerful ministers is spelling doom for the country.

The crux of the current political problem for economic liberalization is, in our view, the nature of leadership within the central government, not obstreperous allies or an unhelpful opposition. The Congress party is divided on economic policies. There is substantial opposition within the party to any serious liberalization of the economy.
Moreover, paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected prime minister, Manmohan Singh, who lacks a political base of his own.

The S&P report is embedded below.

S&P-Report-Will India Be the First BRIC Fallen Angel_June2012