Aug 10, 2012, 12.51AM IST TNN
It said the economic slowdown in India was sharper and more broad-based than anticipated and was now deeply entrenched across all sectors of the economy. “There has been little policy response from either the Reserve Bank of India or the government and with the global uncertainty dragging on, we see nothing on the horizon to lift the economy from its funk,” said Glenn Levine, senior economist at Moody’s Analytics, adding that the second factor was the poor monsoon which was running well below average.
The agency, which is a division of Moody’s Corporation, said the slowdown was the most pronounced in the country’s corporate sector.
“Confidence among Indian firms has been crushed by weak demand, elevated interest rates, high inflation and most significantly, the instability created by a weak central government that has badly lost its way,” Levine said in the report titled ‘India Outlook: Below Potential’. The agency lowered the growth estimate for 2013 to 6% from the previous estimate of 6.2%.
In June, global ratings agency Standard & Poor’s had cautioned that India could be the first among BRIC countries at risk of losing its investment-grade rating due to slowing GDP growth and political roadblocks to reforms. S&P had said that a divided leadership at the Centre might be the biggest hurdle to reforms.
The deficient monsoon and slowdown in economic reforms have added to the gloom and led to a raft of downgrades on GDP growth for 2012-13.
Moody’s Analytics said in its report that the prime minister has one final opportunity to salvage his legacy. “With two years left in office, Prime Minister Manmohan Singh must turn things around quickly or risk becoming a lame duck for the remainder of his term, leaving behind a legacy of missed opportunity,” Levine said.
The Congress said the government was taking all steps to enable the economy to return to a high growth path. “All the steps needed for India to return to a high growth trajectory are being taken. However, we cannot be oblivious to the fact that a sluggish global economy does impact us too. But the prediction made by Moody’s seems a stretch and perhaps betrays a lack of understanding about the robust fundamentals of the Indian economy,” party spokesman Manish Tewari said.
But the Moody’s Analytics report gave a fresh handle to the opposition to slam the government on its reforms record. “For all practical purposes, the PM is already a lame duck. He doesn’t lead either in Parliament or outside,” BJP leader and former finance minister Yashwant Sinha said. “I must confess that I find these comments on India’s PM very humiliating. But it cannot be denied that while the government may try and hide the truth from our own people, keen observers abroad are not deceived.”
Levine said finance minister P Chidambaram was making all the right noises, with pledges to curb the government deficit and lift business confidence and investment but bold measures were needed to revive and restore the health of the economy.
“While we applaud the intent of the new finance minister, it all has the feel of being a quick fix, last-ditch effort to avert the economy from its downward spiral. But an economy is a complex combination of millions of different units-households, firms, government entities and so forth-that cannot be easily manipulated using tricks or quick fixes, at least not over a prolonged period,” Levine said.
“We will need to see sustained pro-growth policies before we start to consider the Indian government anything but a sizeable drag on economic activity,” he said. The agency expects growth to rumble along at 5-6% to mid-2013 and said that risks to the outlook remained elevated and weighed to the downside.
Moody’s report: Govt should act, not sulk
This is only the latest in a long list of individuals and institutions who have been saying much the same thing – government inaction is costing the economy dearly.
It would be a mistake for the government to bristle at this suggestion, as it has more often than not done in the past, and get defensive about it.
It must come to terms with the fact that there is a widespread perception of paralysis, and one that is not entirely baseless.
The best way to react to such a perception is to seek to dispel it with action. No amount of denials or announcements of pious intentions can substitute for concrete action.