A Look At India’s Economic And Political Problems That Has Everyone Freaking Out

By admin on June 21, 2012

indian woman construction, labor, poverty

India’s GDP slowed to 5.3 percent in the January to March quarter. Since then S&P has warned that the country could lose its investment grade, and Fitch revised India’s outlook to ‘negative’.

Sentiment has turned against India not just on a slew of weak economic data, but also the country’s political unwillingness to implement reforms, and on allegations of corruption.

We drew on S&P’s report, “Will India Be The First BRIC Fallen Angel?” for a broader look at what’s got everyone bothered about the Indian economy.

While S&P says the country is in a better position to deal with economic shocks now than it was in the past, the country has many challenges ahead.

India has the lowest credit rating among the four BRICs

India has the lowest credit rating among the four BRIC nations, and it is the only one with a negative outlook. Russia and Brazil have ‘BBB’ long-term foreign currency ratings, China has an ‘AA-’ rating, and all three have stable outlooks.

Meanwhile, S&P has India’s long-term sovereign rating at ‘BBB-’ but with a negative outlook, meaning there is a one-in-three chance of a downgrade in the next two years. S&P has warned that India could be downgraded to junk status.

Source: Standard & Poor’s

Business confidence has taken a hit

Business confidence in the country has taken a hit for a host of reasons including “policy paralysis within the central government”.

The perceived slowdown in government decision-making, failure to implement reforms that have been announced, bottlenecks in crucial sectors have all contributed to the deteriorating business confidence.

Set backs in economic policy, for instance the reversal in the cap on foreign direct investment (FDI) and government’s stance on retrospective taxes, have hurt investor sentiment.

Source: Standard & Poor’s

Lower savings rate in coming years could translate to lower growth

India’s economy grew about 8 – 9 percent in the three years preceding the global financial crisis. But GDP is expected to grow about 6.5 percent in FY 2012-2013.

Fiscal strain and lower corporate profits are reducing both public and private sector savings rates in coming years which could lower investment and raise the current account deficit. This in turn could lower GDP growth or raise the external deficit making the country more vulnerable to external shocks.

Source: Standard & Poor’s

See the rest of the story at Business Insider

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