India: Drama of the Outlook Downgrade

Here is the S&P announcement on downgrading the outlook on India’s lowest investment grade credit rating. By and large, I think it is a reasonable decision. I am not ‘shocked‘. It is interesting that the linked BS article talks of Indian FinMin officials expecting an upgrade. That shows how far they are out of touch with market perception of India and how far their government has contributed to it in the last twelve months.

S&P had laid down markers for the credit rating to stabilise:

the ratings could stabilize again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate. Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertilizer subsidies, or an early implementation of the goods and service tax.

The government has given an inkling of its ‘in-principle’ decision to decontrol prices. The reactions of Prakash Singh Badal and that of BJP are both typical and disappointing. One hopes they are merely political. The government is testing the waters and others are putting down markers. Somebody has to rise above short-term political goals. Easier to write in a blog than to do it. When the government is ‘keen‘ on putting Bangaru Lakshman in jail while it stoutly defends all its ministers in the 2G scam, it is hard (but not impossible) for the BJP to appear and act magnanimous.

That is why the political climate is so important in a country to undertake crucial reforms that impinge on several vested interests. When there are no divergent political ideologies but only divergent personal agendas which, of necessity are ‘either-or’, meeting points are usually quickly lost and there is stalemate. Of course, it is not peculiar to India now.

This post originally appeared at The Gold Standard and is posted with permission.

One Response to "India: Drama of the Outlook Downgrade"

  1. Amar   May 7, 2012 at 10:31 pm

    I sincerely doubt the current government is going to be able to execute any major reforms till the next general elections. The reasons is simple and similar to what has been happening for the past few years.

    It's a coalition govt , hanging on by the thin threads of minority parties, each of whom have their own agenda for the current govt to fail (TMC, DMK).

    So the official opposition of BJP, and the unofficial opposition of partners like TMC and DMK are unlikely let the Congress led govt succeed. Because if it does, then Congress is likely to gain an upper hand in 2014 general elections at the cost of all these official and unofficial opposition parties.