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.
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.
India’s chief economic adviser, Dr Kaushik Basu has admitted that more reforms won’t be forthcoming until 2014. This is simply unacceptable
India’s chief economic adviser, Dr Kaushik Basu, Professor of Economics at the prestigious Cornell University, who was speaking on India’s Economy and the looming Economic Crisis of 2014 at Carnegie Endowment at Washington last week, virtually conceded that major economic reforms are stalled till 2014 as a result of a policy lockdown and has adverse effects on the Indian economy of growth slowdown and prices shooting up.
Going by media reports he went on to convey that decision-making in a coalition had taken the steam out of reforms. Second it is unlikely that there would be any big-ticket reforms before 2014.
Back home, as an after-thought, this was clarified to be his intention of attributing it to the likelihood of a European banking crisis in 2014 when European Central Bank loans to Italy and Spain fall due for repayment, causing further pain to the EU economies with wider global repercussions. Dr Basu’s critics here, unwittingly read between the lines by taking it as a reference to the Parliamentary polls scheduled for 2014.
The government is now required to reaffirm its appetite for reforms by initiating measures to encourage FDI (foreign direct investment), including infrastructure, easing of credit flows for the priority areas and direct and indirect tax initiatives. It still has to address a more substantive agenda of tacking more serious immediate problems of persistent inflationary pressures, rising current account deficit and boosting growth closer to double-digit levels with the RBI pointing out that further space for monetary action at tackling price rice is limited, given the unbridled increase in government spending and the large borrowings to fund it. A major breakthrough on price front requires the government to move fast on retail reforms that can usher in competition in retail trade, bring down middlemen and huge trade margins to slow down price rises. The levels of fiscal deficits have to be brought down by pruning oil, fertilizer and foodgrain subsidies.
There is no need whatsoever to wait for the distant 2014, notwithstanding EU and/or Indian parliamentary polls; we need to go ahead with the reforms implementation here and now. There are only mental road-blocks and certainly not coalition politics or corruption that is mere fig leaf to cover gross inefficiencies and glaring mis-governance now prevailing.
That a single-party rule alone can bring about faster growth seems to be remote in the light of political conditions in the country today, even after successive bouts of multi-party/coalition regimes—the last being NDA and UPA 1, succeeded now by UPA 2. Earlier we have witnessed multi-party governments led by mavericks like Morarji Desai, Charan Singh, Chandrashekar, VP Singh, et al.
During the short spell that PV Narashima Rao, as prime minister (PM), led a minority single-party government, he successfully managed to withstand serious exchange crisis requiring mortgaging of our gold holdings. This emboldened the PM to throw out a run-of-the road budget proposed by his then finance minister, Dr Manmohan Singh, only to insist on embarking on a path-breaking economic liberalization mode leading to the dismantling the licence permit raj. The credit for bringing about this is wrongly attributed to the then FM, when in fact it ought to go rightly to PM Narasimha Rao, who very rightly demanded the change and brought it about too. He single-handedly silenced all his critics and now the reforms have come to stay and India is on the road to glory, the credit usurped by Manmohan Singh, totally ignoring the then PM.
With the widespread fragmentations in the Left, Right and Centre, no party, including the Congress are ready or willing to face the parliamentary polls singly. It is no longer possible. The Vajpayee-led multi-party NDA during its tenure has ushered in an era of India Shining and passed on a steady economy to the UPA 1. This establishes that multi-party governments can and did deliver too, as recently at that.
The present UPA 2 government is not in a condition even to implement the most basic of reforms; it has run the economy to the ground. It merely blames the Coalition Dharma. It is a misnomer. The present PM has been proven ineffective in dealing firmly with his recalcitrant coalition partners, so much so, the Congress Party is forever distrustful and suspicious of its own allies fearing that they will pull the carpet any moment. This was evident when the Trinamool Congress threatened to pull out in March 2012 if there was not roll back in the rail fares.
The ineffective coalition management is evident with the Congress PM pandering to the whims of the party leaders like the Trinamool Congress boss who demanded and got allotted the Railways and made a mess of it—not raising funds by raising fares for years, throwing passenger safety and security to the winds; the DMK insisted and got IT that culminated into a massive scam, its magnitude is yet to be established and IT minister is lodged in Tihar Jail; Union minister for chemicals is the DMK supremo’s son who can’t answer parliamentary questions because he understands only Tamil. He is forever involved with brawls with his siblings in his constituency of Madurai. From day one the NCP held on to agriculture, a turf jealously guarded by its big boss. Rising food inflation, he contends, is not his concern; neither is Sonia’s Food Security Bill or cotton exports resulting in more and more farmers committing suicides in his own backyard.
There are no valid grounds to blame the coalition partners who need to appropriately taken on board to agree with the common minimum programme implementation. When Mr Vajpayee could do it so successfully there is no reason why the present PM can’t do it too. He did run a multi-party government in UPA 1. It is absolutely wrong to hold this as one of the causes of failures to implement reforms.
The second so-called impediment to development is stated to be the rampant corruption prevailing all around in the country. It required a mass upsurge like the India Against Corruption movement to initiate the Lok Pal, anti-black money and unearthing of foreign bank accounts, tax evasion via tax havens, et al. Even the draconian retrospective amendment, going back 60 years to the very inception of the Income Tax Act has not encountered any roadblocks here or abroad.
The government simply lacks the will to bring anti-corruption enactments to the floor of the parliament. One fails to understand why the Direct Tax Code, Companies Bill, GST, FDI, insurance amendments should be hanging fire, even when they, along with a multitude of others, have been cleared by the Parliamentary Standing Committees. None of them have anything whatsoever to do with the corruption issue even remotely. Here again, the government is barking up the wrong tree and flogging the wrong horse.
Adi Godrej, the CII president, speaking on the Roadmap for Growth rightly points out—“The government also needs to act. Reviving growth will depend on restarting the reforms process and through delivery of effective governance... There are lots of measures which can lead to internal improvements and make industry competitive. Investments in innovation, R&D, total quality management, continuous improvement... GST is a readymade stimulus package. It just needs to be implemented. That can add 1% to 2% to GDP. The new DTC, new manufacturing policy everything is ready just requiring implementation. This will create a virtuous cycle, boost production and consumption. There is delay in decision making.” Well said.
According to a report carried out by Ipsos, a global research firm, following a survey of over 19,000 people in 24 countries, as recently as March 2012—“India has emerged the second most economically confident nation leading the table for the second consecutive year. With Saudi Arabia with 89%, India’s economic confidence jumped 5% points to 75%, China at 71%, Sweden 70%, Germany 68%, Canada 64% and Australia 62%. India has overtaken Japan to become the 3rd largest economy in terms of purchasing power parity and heading for accelerated growth following RBI cutting the repo rate by 50 bps.
This could provide some confidence to overall sentiments and stimulate FDI. If inflation momentum eases in the near future, RBI could cut rates further to boost investments... government has to further strengthen domestic demand and improve investor confidence and to improve the conditions for private investments, address infrastructure bottlenecks, and enhance public service delivery.” (Italicized for emphasis) This says absolutely nothing new. Only effective implementation at ground-level is called for here and now!
This report only highlights that India has the capacity and capabilities to get things done. We need to get our netas to get into the act, overcome the Coalition Dharma complex and come out with concrete measures to ruthlessly root out corruption with a firm hand, without fear and favour by fast tracking all corruption cases—Mr Raja is in Tihar Jail for 14 months despite overwhelming evidence, including an exhaustive CAG report.
The melt-down in the Western economies is reducing investments and cutting jobs forcing employees out of jobs. Most of our highly qualified NRIs and PIOs Diaspora, presently spread all over, need to be persuaded to return to put their talents, expertise and vast overseas exposure to better use back home. We need the will to get it done it just now, not to wait for distant 2014!
(Nagesh Kini is a Mumbai based chartered accountant turned activist.)