Global rating agency Moody’s has changed its outlook for the Indian economy to ‘negative’ from ‘stable’ while reaffirming its current long-term sovereign rating at Baa2, its second-lowest investment grade score. Moody’s has cited the ongoing deceleration on the growth front to revise its outlook for India, but we are in the midst of a global economic slowdown, with growth prospects weak, lacklustre and even negative in mature and emerging markets. True, India’s short-term indicators have worsened of late in the face of subdued demand, but the fact remains that the economic fundamentals for the medium term and beyond remain solid.
Low inflationary expectations, sustained budgetary rectitude and no external imbalance in the form of a rising current account deficit are positives. The much-improved ease of doing business indicators, the recent lowering of corporate tax rates that are globally competitive with our peer economies, and recent steps to boost exports and stepup project implementation including in the high-growth potential real estate sector would rev up the growth momentum, once some structural issues are sorted out. India must develop a market for corporate bonds, reform banking, find the courage to collect realistic user charges in power and realign the incentives in farming to make cropping patterns better fit India’s varied agroclimatic conditions.
Reviving public private partnerships in infrastructure, particularly in building the new towns that urbanising India needs, coupled with a functional debt market, would push investment back above 30% of GDP. Powerlines have reached rural India, making possible an agro-processing revolution, if power were to turn a sustainable industry. With some sound reform, growth in India can come roaring back.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
via A little too moody to be realistic