Moody’s to PM Modi: Rein in party members or risk losing global credibility

The research arm also said that the external headwinds are growing stronger and slowdown in global growth is hurting India’s exporters.

By: ENS Economic Bureau | New Delhi | Updated: December 25, 2015 10:21 pm
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Growing voices in the country against rising intolerance, on Friday, found an echo in Moody’s Analytics— a division of Moody’s Corporation — as it called for Prime Minister Narendra Modi to keep his party members “in check or risk losing domestic and global credibility.” It also blamed the government for its failure to deliver on promised reforms.

While the government does not have a majority in the upper house of the Parliament and has been unable to pass through important legislation, the report titled ‘India Outlook: Searching for Potential’ also said that the controversial comments from various BJP members may not just lead to a possible increase in violence but may also result in stiffer opposition for the government in the Upper House as debate turns away from economic policy.

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“While Modi has largely distanced himself from the nationalist gibes, the belligerent provocation of various Indian minorities has raised ethnic tensions. Along with a possible increase in violence, the government will face stiffer opposition in the Upper House as debate turns away from economic policy. Modi must keep his members in check or risk losing domestic and global credibility,” said Moody’s Analytics.

The report not only blamed the government for failing to deliver on the promised reforms but also raised questions over its ability to deliver on them going forward.

“Overall, it’s unclear whether India can deliver the promised reforms and hit its growth potential. Undoubtedly, numerous political outcomes will dictate the extent of success,” said the report.
It added that while lower interest rates may support the economy in the short-term, reforms are needed to reach long-term potential growth and therefore the reform agenda needs attention.

Stating that the ruling coalition does not have a majority in the upper house to pass crucial reforms, the report also pointed out the importance of the ongoing elections in Bihar where BJP is not the incumbent and a victory there for the party will help secure a majority in the upper house which is critical for passing important legislation. “The state election in Bihar—one of India’s largest and poorest states—could prove pivotal to Modi’s leadership. The BJP is not the incumbent, so a win here would help secure an upper house majority,” said the report adding that better political outcomes could help India achieve reforms.

Projecting a GDP growth of 7.3 per cent for the quarter ended September 2015 and 7.6 per cent of FY16, the report said that key economic reforms such as — land acquisition bill, a national goods and service tax, and revamped labour laws— could help achieve higher GDP growth rate. “They are unlikely to pass through Parliament in 2015, but there is an even chance of success in 2016,” said Moody’s Analytics.

The research arm also said that the external headwinds are growing stronger and slowdown in global growth is hurting India’s exporters.

“The slower than expected US growth trajectory and sluggish euro zone growth will drag on external demand,” the report said. It also said that while lower oil prices have buttressed the trade balance, a rebound in prices could see the trade balance deteriorate.