S&P threatens to lower rating
The economic growth fell to a nine-year low of 5.3% for the three months ending March 2012, while the overall growth for FY’12 stood at 6.5%
MUMBAI: Global agency Standard and Poor’s yesterday threatened to downgrade India’s credit rating to ‘speculative grade’ saying the roadblocks for reforms are on account of division of roles between Sonia Gandhi and ‘unelected’ Manmohan Singh.
The crux of the current political problem for economic liberalisation is the nature of leadership within the central government and not ‘obstreperous’ allies or an ‘unhelpful’ opposition, it said.
“Slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment grade rating”, the S&P said in its report — Will India Be The First BRIC Fallen Angel?
Standard and Poor’s, which had lowered India’s rating outlook to ‘negative’ from ‘stable’ in April, said the Congress party is divided on economic policies and there is substantial opposition within the party to any serious liberalisation of the economy.
“Moreover, paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected Prime Minister Manmohan Singh, who lacks a political base of his own”, it said.
The S&P said the division of roles between “a political powerful” Congress president and an “appointed” prime minister “has weakened the framework for making policy, in our view.”
The S&P report led to substantial erosion of gains in the stock market in early trade and the BSE Sensex finally closed 51 points down. It also left a negative impact on rupee against dollar.
Setbacks or reversals in India’s path toward a more liberal economy, S&P’s credit analyst Joydeep Mukerji said, “could hurt its long-term growth prospects and, therefore, its credit quality.”
S&P had upgraded India to investment grade BBB rating in January 2007, after four years of above nine per cent growth.
BRIC refers to the high-growth economies of Brazil, Russia, India and China. The other three BRIC members enjoy a higher rating or outlook than India’s at present, S&P said.
The economic growth fell to a nine-year low of 5.3 per cent for the three months ending March 2012, while the overall growth for FY’12 stood at 6.5 per cent, lower than the 6.7 per cent clocked during the peak of the credit crisis in the Western world.