After the two international rating agencies, Standard and Poor as well as Moody’s, have degraded India’s economic rating, Prime Minister Manmohan Singh and his courtiers should stop blaming the Opposition for expressing concern at the country’s negative outlook.
This is what S&P analyst Takashira Ogawa has observed on India’s outlook: “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 villain of the piece is thus the “weakened political setting”. The leader of that weakened political setting is none other than the government of the day and its leader, the Prime Minister. The S&P’s identification of the core problem in India is thus almost the same as what senior BJP leader L K Advani has been saying for over two years now—“the weakest Prime Minister we ever had”.That this government cannot transform the situation is now a belief embedded in Indian entrepreneurs themselves—and that is the final proof of the S&P’s evaluation of the Indian situation. We have all seen earlier the data on Indian corporates being flush with cash, but are not investing in India; they are looking for buyers abroad.
Now the richest Indian in the UK, Lakshmi Mittal, has confirmed this negative sentiment about the country. He said in the presence of the Prime Minister at the Bhatinda refinery inauguration that India is too important to be ignored, but his main attention is now on countries such as Canada and Brazil. Thus, alarm bells are already ringing. We also see those bells ringing from the falling value of rupee, drop in investment and rising inflation. But is the government listening? And even if the government has its ears alert and eyes wide open, who can believe in its ability to bring about the change that everyone demands but only find paralysis all around?
The alarm has turned into a tsunami warning itself after the S&Ps rating downturn. Now analysts are no longer talking of small change; they are fearing the big catastrophe. They are beginning to compare 2012 to 1991 and are asking is the country in for a situation like then and pledge its gold? Remember, it is not the BJP leaders who Congress may accuse of having a vested interest in cutting UPA II to size who are sounding the tsunami alarm. It is Reserve Bank of India’s Governor D Subbarao himself.
Speaking at a book release function in New Delhi, Subbarao posed the question: “Is 2012 like 1991?” He recited all the data that a person at the height of the Central bank would have at his fingertips; and though almost all the data was more alarming than in 1991, as the Central banker, he was reassuring the nation that there would not be an economic implosion. It may not be. But in the latter part of his analysis, was he speaking tongue-in-cheek?
The story of policy paralysis has been told and retold several times over the last 12 months, even by the government’s own economic advisers. But events in the last four months have not convinced the public that the much-touted reforms will roll out.
The problem is that UPA II is a non-starter. One day, the government bans cotton exports, the next day it removes the ban. FDI-in-retail had egg on government’s face. As if the series of scams over the entire 2011 was not enough, we now have scams over defence purchases and the army generals fighting their battle through proxies in courts and media. The fact, therefore, is: India has inherent economic strengths. But the inherent faultlines within the UPA II outweighs them many times over.
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The opinions expressed in this column are the author’s own.