No political will

The rating agency Standard & Poor’s warning of an investment downgrade for India was well supported by the poor performance on the industrial growth front. It is easy to dismiss warnings about the economy as alarmist, as finance minister Pranab Mukherjee did, or even to find designs behind such negative assessments.Even the credibility of such judgments is sometimes questioned on the ground that the agency which threatens India with junk status in investment had given top rating to junk financial products before the 2008 financial collapse. But when there is demonstrable weakness in the form of falling growth and industrial output, increasing deficit, rising inflation and deterioration in the performance of all sectors of the economy, it is unwise to dismiss the message and blame the messenger. S&P’s warnings — the earlier one in April and the latest one — are in line with the analyses and predictions of most observers of the economy. The agency only used a colourful image when it felt that India might become the first fallen angel among BRIC countries.

The 0.1 per cent industrial growth rate of April marks an output increase of below five per cent for the fifth consecutive month. Capital goods production contracted by 16.3 per cent, and mining by 3.1 per cent.  In the last few months, capital goods output has been contracting by over nine per cent. This shows that new projects are not taken up and fresh investment is not being made. Employment situation is getting worse and rising inflation is adding to the problem. If agricultural growth is also affected this year, the situation will get much worse.

In relative terms, a growth rate of even 6-7 per cent is not bad.  Economies are slowing down in other BRIC countries and the average global growth is much less. But internal needs and pressures call for a consistently higher growth rate in India. The S&P assessment has rightly put the finger at the reason for the poor performance of India’s economy. This has been  pointed out by others also in the past. The government lacks the political will to take decisions and decisive actions to get out of the current quagmire. Lack of consensus on the steps to be taken and coalitional problems are cited as reasons for the paralysis. But it should be remembered that it is much more difficult to recover lost momentum than to stop the loss of momentum.