UPA Government a drag on economy, says Moody's

Discussion in 'Economy & Infrastructure' started by maomao, Apr 26, 2012.

  1. maomao

    maomao Veteran Hunter of Maleecha Senior Member

    Apr 7, 2010
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    On a day global rating agency Standard and Poor’s (S&P) downgraded India’s credit outlook to negative, another international agency Moody’s Analytics slammed both the Gandhi family and the UPA Government for the poor state of country’s economy and for failing to restart the legislative process for reforms.

    “The real power behind the Government, the Gandhi family, blew their chance to restart the legislative process at the recent State elections in which family scion Rahul Gandhi invested countless hours and money touring the rural backwaters of Uttar Pradesh,” Moody’s Analytics Senior Economist Glenn Levine said.

    Moody’s Analytics is a division of Moody’s Corporation that provides expertise in economic and consumer credit analysis, credit research and risk measurement, enterprise risk management and structured analytics and valuation.

    If Moody’s indicted UPA’s handling of the political situation, S&P warned India to pull up its socks and improve the fiscal situation or face a rating downgrade. It lowered the country’s outlook to negative on account of poor growth prospects and sluggish economic reforms, even as the Government put up a brave face saying there was no need to panic.

    The credit rating agency lowered India’s outlook from stable (BBB+) to negative (BBB-), which is the lowest investment grading rating, saying in a statement that “the outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish or progress on fiscal reforms remains slow in a weakened political setting”.

    The comment of both the agencies and their comments on the factors dogging the Indian economy are in line with the recent statement of Government Chief Economic Adviser Kaushik Basu that politics had held back major reforms, which could not be undertaken before 2014 general elections.

    Touching on Rahul Gandhi, Levine noted that the Congress party was drubbed by Mulayam Yadav’s Samajwadi Party and “Gandhi has barely been heard from since then.”

    The remarks preceded its contentions that the UPA Government, weighed down by corruption and funding scandals, had passed no notable Bills. “The Government has lost all momentum and progress is unlikely on existing Bills covering pressing issues such as land reform, fuel subsidies, labour rights, and the much-discussed supermarket reforms between now and the next national election in 2014”, the report said.

    The report termed Prime Minister Manmohan Singh as an “ageing technocrat who now appears tired of the rough and tumble of Indian politics”, and added that the UPA didn’t have the numbers or the leaders to push through tough-minded reforms needed to drive the next wave of growth.

    The report said that India was growing but below its potential as politics was weighing on the economy. The rating’s agency termed the UPA Government at the Centre as the “single biggest drag” on business activity.

    “The single biggest factor weighing on the outlook is the Indian Government. In all economies it is impossible to separate the economy from the political outlook, and that is particularly the case in India,” Levine said.

    The report further noted that there was broad-based weakness in the economy as all sectors are vulnerable.

    “Risks are still tilted to the downside because of the dire political situation, though there are some reasons for optimism. We see growth accelerating through 2012, but it won’t hit potential until the second half of 2013,” Moody’s Analytics said.

    Meanwhile, analysts painted a grim scenario post the S&P downgrade, saying it would have a negative impact on the rupee, make fund-raising difficult, and adversely impact the capital market.

    “The markets sentiment is already negative and any such negative news would further push equities and currency on a downward trajectory,” Founder and CEO of India Forex Advisors Pvt Ltd, Abhishek Goenka said.

    Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, said, “Indian (new) sovereign rating is just one step away from junk bond status...Somehow I feel the dream of India growth story is coming to an end.”

    The lowering of rating outlook comes despite Finance Ministry pitching for an upgrade at the recent round of meetings between the officials and representatives of the S&P.

    S&P said India’s real GDP per capita growth will likely remain moderately strong at 5.3 per cent in 2012-13, compared with about 6 per cent on average over the prior five years.

    India’s favourable long-term growth prospects and high level of foreign exchange reserves support the ratings, the agency said.

    On the other hand, India’s large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings, it added.

    “High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle--with the next elections to be held by May 2014--and the current political gridlock,” S&P said.

    Such reforms include reducing fuel and fertiliser subsidies, introducing goods and services tax (GST), and easing of restrictions on foreign ownership of various sectors such as banking, insurance, and retail sectors, it said.

    But Finance Minister Pranab Mukherjee said there was no need be “panicky’ about the whole development.

    “I am concerned but I don’t feel panicky because I am confident that our economy will grow at 7 per cent, around 7 per cent if not plus. We will be able to control fiscal deficit and it will be around 5.1 per cent,” he said while reacting to the development.

    Accepting though that it is a timely warning, Mukherjee said that the Government will take note of the decision taken by S&P.

    “We should continue to work for higher GDP... We will take note. It is a timely warning,” he said.

    Bleak picture

    S&P’s take

    S&P lowers India’s rating outlook to BBB-
    India’s rating was BBB+ before the revision
    BBB- is the lowest investment grade rating
    S&P move based on India’s sluggish economic reform growth
    India’s high fiscal deficit, debt burden are constraints on ratings: S&P
    S&P says ratings could stabilise if India cuts fiscal deficit, spurs investments
    Moody’s take

    Moody’s calls Indian Govt ‘single biggest drag’ on business activity
    India’s outlook underperforming due to poor management
    Govt paralysis, tight monetary outlook, weighing heavy on India
    Moody’s says Govt has lost momentum and no progress expected on key reforms
    See faster growth through 2012, to hit potential
    till 2013, says Moody’s

    UPA Government a drag on economy, says Moody's
    Last edited: Apr 26, 2012
  3. SixSigma1978

    SixSigma1978 Regular Member

    Sep 9, 2010
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    Greater Manchester
    Pranav's statement = ostrich with its head in the mud.

    The article fails to mention the real reason for indias mess : communists in UPA 1 who hijacked all reforms and now TrinAmool aka Mamata banerjee who is hijacking UPA 2 both from West Bengal.Funny how West Bengal politics which is legendary for ruining west Bengal is now deciding and dooming India
  4. Oracle

    Oracle New Member

    Mar 31, 2010
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    Bangalore, India
    /\/\/\ This is so true.

    However, the blame and the shame lies entirely with Congress. They needed to choose allies with care. And also not taking their allies on board while announcing reforms, only to be rolled back later shows how Congress has lacked in vision and leadership to take India forward. I'm really disappointed with UPA ll.
    Last edited: May 2, 2012

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