I
t is now clear that the principal concern over India among foreign investors is not about slowing growth, as much as political roadblocks to economic policymaking. This aspect is well highlighted in the global rating agency, Standard & Poors' (S&P) latest report on India, which provocatively asks whether the country will become the first “fallen angel” among the four BRIC nations that also include Brazil, Russia and China. Growth, no doubt, has fallen. The measly 0.1 per cent industrial growth rate recorded in April marks the fifth consecutive month of sub-five per cent annual output increase, pointing to a serious manufacturing slowdown. The position is even more serious for investment activity: Capital goods production growth starting from the last July quarter has averaged minus 9.2 per cent, indicative of a complete drying up of new projects. But these are not things really bothering the likes of S&P. The pace of growth is, after all, decelerating in all economies, including the other three BRIC countries. S&P has, hence, found no case for lowering India's sovereign rating alone on that count. According to it, the country may even manage to meet the official GDP growth target of 7 per cent this fiscal, with moderating global oil prices helping to also stabilise its external position.
The bigger worry – increasingly aired by all investors, foreign or domestic – is the political context that might lead to economic liberalisation not simply stalling, as it is now, but even receding. Could the allegations of corruption in telecom, coal mining or oil and gas undermine public support for pro-market policies, when the actual reasons may have to do with these sectors continuing to be heavily regulated? Would these scams result in a backlash against reforms itself and be used opportunistically by supporters of the old order to bring back discretionary rules and regulations, as opposed to a more transparent, ruled-based policy framework?
The above fears cannot be dismissed because investment is ultimately an act of faith and perceptions do matter. The S&P report should be seen as reflecting these concerns more than anything else. The onus for dispelling them, in turn, lies with the Government itself. The agency is not wrong either in noting that the biggest obstacle to substantive policy decision-making today is the opposition to reforms from within the main ruling party's ranks itself. Dr Manmohan Singh was a successful Finance Minister only because he enjoyed the unstinted political support of Mr Narasimha Rao, who headed a Congress minority government in the early nineties. But Dr Singh as Prime Minister has been unable to convince his own cabinet colleagues and partymen of the need to push through important liberalisation measures. It is for the Congress leadership now, especially Ms Sonia Gandhi, to do a Narasimha Rao and allow the ‘real' Dr Singh to do just what is right for India.