Govt biggest factor weighing on outlook: Moody's

India's outlook is still underachieving and poor management has dragged economic growth to below potential, Moody's Analytics’ senior economist Glenn Levine said

New Delhi: Moody's Analytics said India is growing but below its potential as politics is weighing on the economy and termed the national government as the “single biggest drag” on business activity, reports PTI.

India’s outlook is still underachieving and poor management has dragged economic growth to below potential, Moody’s Analytics’ senior economist Glenn Levine said.

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

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

“Softer global conditions, weak investor and business confidence, government paralysis, and tight monetary conditions are all weighing on demand. Almost all sectors have slowed, with particular weakness in manufacturing and mining, alongside a worrying contraction in private investment,” the report said.

GDP (gross domestic product) growth slowed to 6.1% year-on-year in the fourth quarter of 2011, the slowest pace since 2008, and is growing at around 6% through the first half of 2012.

However, a steady upturn in activity is likely to lift the second-half GDP growth to 6.5%.

This puts 2012 growth substantially below India's potential of around 7.5%.

“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.

The report further said that the national government weighed down by corruption and funding scandals has passed no notable bills.

“The government has lost all momentum, and progress is unlikely on existing bills like land reform, fuel subsidies, labour rights, and the much-discussed supermarket reforms between now and the next national election in 2014,” it 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.

Some of the other political risks include possible tensions with China, as highlighted by India’s recent missile launch, and Maoist insurgency spread across nine states.

However, the Reserve Bank of India’s (RBI) bigger-than-expected 50 basis points interest rates cut in April is a positive move and it will lift demand from the second half of 2012. Besides, preliminary numbers indicating average monsoon rains in 2012 is another piece of good news, the report said.


Markets shrug off S&P’s negative outlook

Sensex rallied from day’s low after S&P issued a negative outlook on India; shows declining influence of ratings agencies on a beaten down market

The Indian stock markets tanked on the news of Standard & Poor’s (S&P) downgrade of India’s sovereign prospects, despite an earlier warning from the ratings agency, and then recovered immediately a large part of the losses. The agency downgraded India from ‘stable’ to ‘negative’, citing slow fiscal progress and deteriorating economic indicators. At the time of the announcement, the Sensex tanked by a whopping 200 points within a span of 14 minutes, from 17219 to 17019, between 1151 and 1205 hours. However, it recovered 132 points and closed at 17,151.

Earlier in January, the Euro markets were unfazed when S&P lowered sovereign credit ratings on Greece to selective default (aka junk), and even had risen sharply despite the downgrade. Even the Athens Composite Index rose after the downgrade indicating that the markets had shrugged off the ratings downgrade. The Sensex, too, rose on the news.

Two different market reactions to ratings downgrade show that a market that is already beaten down and will price in an additional negative news quickly. Another reason the market did not collapse is because of the waning influence of ratings agencies and its relevance to the market, especially after their questionable role in the sub-prime crisis where they rubber stamped toxic assets as safe.

Earlier, S&P in February had warned that India’s sovereign credit rating could tilt slightly towards ‘negative' if effective action was not taken to counter “the balance of risk factors” emanating from economic uncertainties at home and abroad. For the same reasons the Indian markets were nonchalant to the warning, back in February.

The negative outlook signals at least a one-in-three likelihood of the downgrade of India’s sovereign ratings within the next 24 months. A downgrade is likely if the country’s economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow. We will see how the market behaves next time.


Public Interest Exclusive
PIL filed for making BCCI a National Sports Federation

BCCI has always been a centre of controversy. The organisation has refused to come under the ambit of the RTI like other sports bodies, but recommends names for awards, which only an NSF recognised by the ministry of sports can do

A public interest litigation (PIL) has been filed against the Board of Control for Cricket in India (BCCI) in the Allahabad High Court, seeking a directive from the court to BCCI to get itself registered as a National Sports Federation (NSF) and abide by all regulations.

IPS official Amitabh Thakur and his wife Nutan Thakur have said in the writ petition that BCCI is not a recognized NSF and has consistently been denying any kind of relationship with the government of India—yet is using all the privileges of being a de-facto National Sports Federation.

BCCI claims to be an autonomous organisation, and hence has resisted government interference in its workings. However, it engages in formulating rules for the game in India and also recommends names for various government awards like Arjuna Awards, Dronacharya Awards and Rajiv Gandhi Khelratna Awards.

The petitioners have said by declaring itself as an autonomous entity, BCCI is enjoying all the amenities without being accountable to the public or the government. “BCCI  is trying to play with the law of the land and is clearly belittling the authority of the state by declaring that it is a private autonomous body having no state control of any kind and is yet directly flouting various laws, rules and regulations in different ways only through its financial might and through its monopolistic position. The result of this is that the BCCI is enjoying all the facilities and privileges granted by the state and is yet not being accountable for its activities, either before the government or before the people, ” the PIL noted.

BCCI has always been a centre of controversy. The organisation has refused to come under the ambit of the RTI (Right to Information) like other sports bodies, but recommends names for awards, which only an NSF recognised by the ministry of sports can do. BCCI’s declaration of being an NGO and claiming tax exemptions have sparked a national outrage in the media earlier.

The PIL comes closely on the heels of another PIL filed in the Bombay High Court, which demands that politicians and ministers be banned from being involved in sports organisations and hold managerial positions there.




4 years ago

Maybe Sachin Tendulkar will (finally??) do something for Indian cricket in India's national interest. And should be motivated in taking this further?

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)