India: The Shaky 'I' in The BRIC

Siddharth Sanyal, Chief India Economist, Barclays Capital said, “But the report doesn’t suggest there will be an immediate downgrade. However, given the current extreme negativity, every new negative news/analysis can weigh further on sentiment.” S&P in its revised outlook rated India’s sovereign rating from stable to negative on the basis of its slow growth, high fiscal deficit and debt burden and also the government’s failure to make economic reforms. To give these ratings they maintained the BBB minus rating which is considered as the lowest investment rating.

The report by S&P says, “The division of roles between a politically powerful Congress party president, who can take credit for the party's two recent national election victories, and an appointed prime minister, has weakened the framework of policymaking in our view. For example, Singh has been unable to liberalise the heavily controlled coal sector despite publicly advocating it for many years. The unusual division division roles and political power inside the central government has likely contributed to poor discipline and cohesion within the cabinet and government as a whole.”

S&P described Prime Minister Manmohan Singh as “unelected” on the basis of his membership of Rajya Sabha as he is fighting with his party colleagues more over policy than with the allies who keep blaming the government for the policy paralysis. The policies that are aimed to benefit the “politically well connected firms” may result in a repercussion against the liberal economic policies. The increase in ways to curb the political fallout of corruption may lead to further slowdown of the economic growth and can weaken the fiscal position.