Last week, Moody’s Analytics, the economic research and analysis division of Moody’s Corporation, warned Prime Minister Narendra Modi about growing “ethnic tensions” in the country. “Modi must keep his members in check or risk losing domestic and global credibility,” said the report titled “India Outlook: Searching for Potential”. With several writers, artists and scientists returning awards, pressure is mounting on the prime minister to take serious cognisance of the unease, but this is the first time a major global institution has expressed concern over the recent political controversies in India. The cautionary note comes at a time when the government is celebrating the improvement in India’s ranking, from 134 to 130, in the World Bank’s ease of doing business index. It is instructive to note that in April, soon after the Union budget, Moody’s Investors Service, also part of Moody’s Corporation, had upgraded India’s sovereign rating outlook from “stable” to “positive”, citing the reform measures by the NDA government. At that time, the growth outlook for the current financial year ranged between 8.1-8.5 per cent. Six months later, that estimate stands at 7.6 per cent. Over the course of the year, other agencies and institutions, including the RBI, have revised the growth estimates downwards. The worry is that a government ill at ease with itself will not focus on the issues that plague the economy.
Agrarian distress, for instance. The rising prices of pulses might be receiving the bulk of attention, yet it is neither the only nor the biggest agrarian challenge facing the government. Reportedly, according to India’s meteorological department, almost half the districts in the country received deficit rainfall this year. Five states have already declared a drought, but these cover just one-third of the affected districts. With adverse climatic conditions likely to continue well into 2016, rural incomes and, consequently, demand will remain depressed. It is not just farmers who are stressed. The recent report by the Swiss financial services firm, Credit Suisse, has shown that the financial strain experienced by 10 large Indian corporate groups has intensified over the last three years. Add to that the poor financial health of public-sector banks, and it appears that business activity may not pick up in a hurry, despite the interest rate cuts by the RBI.
So what has gone wrong since early April? On the economic policy front, the government has failed to push through crucial legislation. These include the GST bill, the land acquisition bill and labour reforms. Second, increasing fears of a climate of intolerance gaining ground have sharpened these failures. No wonder, then, the alarm raised by Moody’s: “…it is unclear whether India can deliver the promised reforms and hit its growth potential”.