Not impressed!!

Political gridlock is crowding out positive impact of reforms.

To the surprise and embarrassment of Finance Minister, who has been long exerting to project India as a flourishing economy among foreign investors, global credit rating agency Standard and Poor’s has retained its ‘negative’ outlook for the country which is just one notch above junk status. Though Government doesn’t agree to it and is audacious enough to acclaim that global investors hold a different view, but this audacity is like living in a fool’s paradise and is nothing more than its face-saving exercise.

Undoubtedly many financial reforms have been announced by Government since September and also the country currently experiences various green shoots like easing-out inflation even reducing most stubborn Consumer Price Inflation, increased factory output, falling gold and oil prices leading to decelerated Current Account Deficit etc. However, why the world is not still convinced to rely on these positives is no rocket science to conjecture. India’s appalling political-paralysis resulting into acute policy paralysis, a cornucopia of corruption and scams, non-transparent and archaic laws etc has severely tainted its image worldwide which might require decades to get cleaned up.

The slow pace, at which reforms undertaken by Govt. were moving ahead, got further decelerated with a Government in dock due to series of scam revelations and an opposition in revenge-mode leading to precluded Parliament. Now it is not shortcomings at economic front but at political which has derailed India’s progress. Legion of policy bills are languishing from one session to another un-tabled or un-concluded. Spate of policy-discussions have been elasticizing from one meeting to another with no consensus to be in sight. It seems political brinkmanship in India has escalated to a toxic level where legislatures have now started compromising on even their core responsibility i.e. to discuss and draft legislation. Food Security bill, land acquisition bill, FDI in insurance, Goods and Services tax including many more bills will perhaps remain stuck till new government comes in.  S&P rightly pointed out “Given the political cycle—with the next elections to be held by May 2014—and the current political gridlock, we expect only modest progress in fiscal and public sector reforms. For example, reforms of fertilizer subsidies, introduction of a nationwide goods and services tax, easing of restrictions on foreign ownership in various sectors such as banking and insurance sectors, will take time.”

It seems that India has taken an oath to always flow against the wind. In the aftermath of global financial crisis when the whole world geared up to restructure banking industry, India didn’t pay heed to it. Now when all major countries are coming forward to clamp down on tax havens, India doesn’t seem to be taking this call seriously. When every other country is enthused with the green shoots in the global economy and trying to make the most of it, India is clogged with unnecessary political altercation at home and losing on the most opportune time to recover from the economic meltdown.

S&P must not be blamed for India’s negative rating, in fact, it would be no wonder even if it is downgraded to junk status given the disturbing trend of political logjam leading to legislation logjam which has severely dampened India’s already fading credibility at international forum. Global investors, who look for stable and transparent legislative regime for their long-term investment plan, no more sees India as a prospective investment-destination. They have gone wary, uninterested and indifferent towards Indian economy. It is high time that Government ignites its dormant insight and modestly accepts what S&P has stated. Government, which is so enthusiastically branding itself at home through ‘Bharat-Nirman’ campaign, would do well if it channelizes even a tad of this enthuse to improvise its depressing global-branding instead of national-branding.