‘Is India’s Growth Story Over?’, says a Time headline. Other lesser publications have gone to town talking about the possibility of Indian being the first ‘fallen angel’ among the BRIC countries. Fallen angel? Seriously?
The panic mongers may have the last laugh (though I sincerely hope not!), but I find it really hard to palate this hyperbole. I find it laughable that an agency like Standard & Poor, which should aim for increased credibility, would resort to using flowery language like ‘fallen angel’! And just for that, I tend to believe they are also playing to the gallery in something that seems to have become a media and public relations game rather than a real assessment to inform investors.
Yes, certainly, India is facing a political deadlock and a sluggishness that is unfortunate. However, compared to the global climate, we are still a growing economy with plenty of potential. Unfortunately, for us Indians, our tendency is to not learn from downturns and shock. Rather, when India managed to brave a worldwide recession, instead of looking long and hard at where we could bolster ourselves for the future as global economies kept sliding, we spent a lot of time patting our own backs and ridiculing the West for not having sufficient safeguards in place.
Well, what we are facing now is the fallout of that sort of complacence. We also excel at riding high and long on small wins. Public perception in India of India can change from day to day, and I mainly refer to that when I say ‘we’ (I genuinely believe policymakers and entities like the RBI are quite level headed in their decisions). Foreign investors on the other hand, have had issues with India for a very long time. The policy issues, corruption and red tape have long inhibited investors and will continue to do so, irrespective of ratings.
Interestingly, stats show that absolute investment was highest in 2008-09 (at US$ 41,874 million) and dips by about 10-13% in the following two years. This year, from April 2011 to Jan 2012, US$ 38,346 million have come in as FDI as per provisional estimates by the DIPP.
I am genuinely concerned about S&P’s statements because they seem very alarmist. I am more concerned about Indian media houses presenting the S&P point of view as larger than life and giving relatively less space to the defence by the government, which is also very balanced in its own right. In this respect, I found the following but from the Time article very reassuring. From my limited (very) perspective, I tend to agree.
According to Rajesh Chakrabarti, assistant professor of finance at the Indian School of Business, the possibility of a downgrade by S&P is not surprising, since the India brand has been taking a hit on many fronts for the past several months. However, he is not convinced by the reasoning offered by the agency. “While there is indeed a slowdown on policy initiatives and growth has slowed down, the fact that a country [could lose] its rating because some of the anticipated things did not happen is a rather strange argument. Normally, a downgrade would happen because of adverse events rather than non-happening of positive events.” He adds that growth slowing down per se is not a risk factor. “While [slower growth] may reduce the prospects of future gains, it does not make the country more risky.”
I am deeply disturbed by media that thrives on creating panic. Do they not understand that the domino effect of panic and dejection alone can cost our economy billions? We can still look at a realistic growth estimate of 6% this financial year, far better than EU’s 2011 growth rate of 1.6% and United States 1.5% and even South Africa’s 3.4% (they were recently added to to the BRICS). If anything, educated, middle class Indians should push for better governance at local level and campaign relentlessly for reforms. Occupy movements should be about think
Even so, if S&P’s maniacal statements push reforms through, I’ll take back my whining!