Moody's: Indian Government Single Biggest Factor Weighing on Outlook

NEW DELHI: Moody's Analytics said India is growing but below its potential as politics is weighing on the economy and termed the national government as the "single biggest drag" on business activity. India's outlook is still underachieving and poor management has dragged economic growth to below potential, Moody's Analytics Senior Economist Glenn Levine said. "The single biggest factor weighing on the outlook is the Indian government. In all economies it is impossible to separate the economic from the political outlook, and that is particularly the case in India," Levine said. The report further noted that there is broad-based weakness in the economy as all sectors are vulnerable. "Softer global conditions, weak investor and business confidence, government paralysis, and tight monetary conditions are all weighing on demand. Almost all sectors have slowed, with particular weakness in manufacturing and mining, alongside a worrying contraction in private investment," the report said. GDP growth slowed to 6.1 percent year-on-year in the fourth quarter of 2011, the slowest pace since 2008, and is growing at around 6 percent through the first half of 2012. However, a steady upturn in activity is likely to lift the second-half GDP growth to 6.5 percent. This puts 2012 growth substantially below India's potential of around 7.5 percent. "Risks are still tilted to the downside because of the dire political situation, though there are some reasons for optimism. We see growth accelerating through 2012, but it won't hit potential until the second half of 2013," Moody's Analytics said. The report further said that the national government weighed down by corruption and funding scandals, has passed no notable bills. "The government has lost all momentum, and progress is unlikely on existing bills like land reform, fuel subsidies, labour rights, and the much-discussed supermarket reforms between now and the next national election in 2014," it said.