Joy over Moody's ratings unwise

India has been one of the fastest growing economies globally and even when growth dipped, it still remained one of the fastest. The dip, it may be recalled, was due to the reckless demonetisation exercise and the hasty introduction of a flawed Goods and Services Tax. Hopefully, this will be rectified soon by the GST Council. It is therefore quite puzzling that there should be such excitement over the rating agency Moody’s upgrading India by one notch and that too after a break of 14 years. Seems like shades of Kumbakonam! Perhaps it would be unfair to term the excitement a colonial hangover, namely to be happy for a pat on the back by a foreign hand. But that is the way of the world economy. Foreign rating agencies serve as a beacon of light guiding foreign direct investors on the path of investment in developing countries. Foreign investment is needed, particularly in the light of Prime Minister Narendra Modi’s various initiatives like Make in India and Stand Up India.

A huge chunk of foreign investment that comes in does so as portfolio investment and goes into speculation in the stock market. It has little productive value as no new capacity is created. This is a dangerous situation. Foreign investment cannot be scoffed at, as private Indian investment is scarce. Private companies are still stifled by inventories, highly leveraged balance sheets and a view that the returns are not lucrative. Besides the small and medium industries that are the backbone of the economy were badly crippled by demonetisation and later by GST. By itself, GST is not bad but its hasty implementation earned it brickbats. The Moody’s upgrade which is predicated on the several economic and institutional reforms introduced by the Modi government should not lead to complacency as the realities on the ground are quite different.

It’s akin to India going up several places in the World Bank’s “ease of doing business” index as the Bank only considered Mumbai and Delhi. This is not to belittle the steps taken by the Modi government in easing up business formalities and processes, but there is still a long way to go to enhance India’s attraction as an investment destination. Meanwhile, there are huge problems to be tackled, and the biggest amongst these is employment to meet the aspirations of 10 million youth that enter the job market annually. Infrastructure projects like roads and ports need to take off but the signs are not very positive. To achieve the target for roads by 2020 India needs to do 88 km per year but it does only 23 km. Minister Nitin Gadkari hopes to increase this to 40 km. If this is the state under one of the most dynamic ministers, the performance of other infrastructure ministries does not leave much room for optimism. It is hoped that the situation does improve now that Mr Modi is aware of the slack.