Centre must act to change the mood
The ratings upgrade of government bonds from speculative to investment grade by Moody’s after nearly 13 years electrified the stock markets. The government is reported to be enthused enough to announce more measures shortly to attract foreign institutional investors to invest in debt instruments. But it was also received with scepticism in other quarters, including by economists concerned about inflation, high interest rates, slowing growth, falling production, a depreciating currency and a host of other economic ills, not to mention corruption.
The upgrade, basically from negative to investment-grade, really helps companies wanting to borrow from abroad since government does not borrow from abroad. As one economist said, it is a sort of status symbol; it shows the faith of the rating agency in the government’s ability to service debt.
The reasons for Moody’s change of heart may be grounded in economic reality. Moody’s officials had a meeting with finance ministry officials in November wherein they were given a detailed account, with facts and figures, of the India growth story. According to reports, they were even chided for their earlier ratings which did not recognise India’s scorching pace of growth since 1991. Maybe this was Moody’s way of making up for its bias against India in the past. Whatever it may be, it certainly galvanised the government and a few others. The markets, however, have gone back to their negative state after that heady moody Wednesday.
While any good news from any quarter is welcome in the present atmosphere of gloom and doom, the fact remains that the government has to start thinking out of the box to get the economy back on track. It is undeniable that the economy is growing, even if at a slower pace, that India’s GDP growth is better than that of the developed countries, and its high fiscal deficit ratio to GDP is still lower than that of the UK, or even the US. But this is a numbers game which eventually is a mug’s game. The very fact that the government is planning to provide food at a highly subsidised rate to 75 per cent of the rural population and 50 per cent of the urban population shows the extent of poverty in the country and the lack of purchasing power in the hands of these multitudes. Even more relevant, it shows that seven to eight per cent GDP growth is not enough to lift these crores of people out of poverty or away from the edge of the poverty line.
There is no time to lose. It would work to the advantage of the Prime Minister and his ministers to seek out mid-level and small and medium entrepreneurs, industrialists and myriad groups bursting with energy and ideas. They should also act immediately to protect domestic industry, as every other country does, from predatory pricing of imports while not encouraging sloth and waste.
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