In the wake of the beef controversy, Moody’s Analytics on Friday cautioned Prime Minister Narendra Modi that unless he reined in members of his Bharatiya Janata Party, India ran the risk of losing domestic and global credibility.
Noting that Mr. Modi’s “right-leaning” party did not have a majority in the Upper House and also faced an obstructionist Opposition, making it difficult to pass crucial reform Bills, it said: “In recent times, the Government also hasn’t helped itself, with controversial comments from various BJP members… Modi must keep his members in check or risk losing domestic and global credibility.” In a report titled ‘India Outlook: Searching for Potential’, Moody’s Analytics — the economic research and analysis unit of Moody’s Corp. and distinct from the global rating arm Moody’s Investors Service — expressed concern over what it called the belligerent provocation of various Indian minorities.
Stiffer opposition
This had raised “ethnic tensions”, it said, and stressed that the government’s reform agenda needed attention. “Along with a possible increase in violence, the government will face stiffer opposition in the Upper House as the debate turns away from economic policy.”
It further said that the election in Bihar could prove pivotal to the leadership of Mr. Modi and noted that he had largely distanced himself from the nationalist jibes.
“Overall, it’s unclear whether India can deliver the promised reforms and hit its growth potential… Undoubtedly, numerous political outcomes will dictate the extent of success.”
The comments in the report, Moody’s Analytics said, were independent of those of the ratings arm, which had earlier this month forecast 7-7.5 per cent GDP growth for India in the current year, the highest among G20 economies. Moody’s rating for India’s sovereign debt is Baa3, just above junk status, with a positive outlook.
Moody’s rival international rating agency Standard & Poor’s on October 20 affirmed its ‘BBB’ long-term and ‘A-3’ short-term sovereign credit ratings for India, adding that its outlook continued to remain stable.
In its report, Moody’s Analytics said that for GDP growth in the current year to be higher than its projection of 7.6 per cent, the key economic reforms of land acquisition bill, a national goods and services tax, and revamped labour laws will have to be delivered. “They are unlikely to pass through Parliament in 2015, but there is an even chance of success in 2016.”
Sensex had fallen about 11 per cent since the euphoria behind the new government propelled the stock market but it was the consistent failure to deliver key economic reforms that had dimmed the optimism, Moody’s Analytics said. It also drew a clear distinction between the domestic and the global causes for investor worries. “While global market sentiment is down, Indian equities have also suffered from a loss in domestic sentiment.”
Lauds RBI
In sharp contrast to the concerns it expressed over the pace of reforms, Moody’s Analytics was all praise for the Reserve Bank of India (RBI) for the improving macroeconomic fundamentals. “India is well placed for the U.S. interest rate normalisation…the rupee will come out relatively unscathed thanks to the RBI’s bulging foreign exchange reserves stockpile.”
