The Gold Standard | Drama of the outlook downgrade

Here is the S&P announcement on downgrading the outlook on India’s lowest investment grade credit rating. By and large, I think it is a reasonable decision. I am not ‘shocked‘. It is interesting that the linked BS article talks of Indian FinMin officials expecting an upgrade. That shows how far they are out of touch with market perception of India and how far their government has contributed to it in the last twelve months.

S&P had laid down markers for the credit rating to stabilise:

the ratings could stabilize again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate. Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertilizer subsidies, or an early implementation of the goods and service tax.

The government has given an inkling of its ‘in-principle’ decision to decontrol prices. The reactions of Prakash Singh Badal and that of BJP are both typical and disappointing. One hopes they are merely political. The government is testing the waters and others are putting down markers. Somebody has to rise above short-term political goals. Easier to write in a blog than to do it. When the government is ‘keen‘ on putting Bangaru Lakshman in jail while it stoutly defends all its ministers in the 2G scam, it is hard (but not impossible) for the BJP to appear and act magnanimous.

That is why the political climate is so important in a country to undertake crucial reforms that impinge on several vested interests. When there are no divergent political ideologies but only divergent personal agendas which, of necessity are ‘either-or’, meeting points are usually quickly lost and there is stalemate. Of course, it is not peculiar to India now.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.