India: The Shaky 'I' in The BRIC

As a result of all this, and after being the favorite of global investors for almost a decade, India may become a ‘fallen angel’. In a note S&P said, “The crux of the current political problem for economic liberalisation is the nature of leadership within the central government, not obstreperous allies or an unhelpful opposition. The Congress party is divided on economic policies. There is substantial opposition within the party to any serious liberalisation of the economy.”

“Despite its recent problems, the Indian economy remains in much better shape to muddle through the current period of heightened global uncertainty than it was earlier, especially in the early 1990's, when it suffered a balance of payments crisis” the report said. Samiran Chakraborty, Chief Economist and Head of Research, Standard Chartered Bank, India said that the report explained the reason of why it changed the outlook about India to negative. He adds, “Getting growth back on track assumes more importance than ever and a pro-growth policy stance will be critical.”

Joydeep Mukherji said, “The combination of a weakening political context for further reform, along with an economic deceleration, raises the risk that the government may take modest steps backward, away from economic liberalisation, in the event of unexpected economic shocks. Such potential backward steps could reverse India’s liberalisation of the external sector and the financial sector.” At last S&P suggested that the policy makers should focus on accelerating the reform process to boost growth rather than becoming defensive.