Moody’s warns Modi over hotheads

Sanjeev Sharma

Tribune News Service

New Delhi, October 30

Global rating agency Moody’s today sounded a warning to the government in the midst of growing social tensions, saying Prime Minister Narendra Modi must keep BJP members in check on provocative statements or risk losing domestic and global credibility.

In its report “India Outlook: Searching for Potential”, Moody’s Analytics, a top economic policy research and analysis institution, said the government’s reforms agenda needed attention to achieve long-term growth. 

It said Modi’s right-leaning Bharatiya Janata Party did not have a majority in the Rajya Sabha to pass crucial reforms and had been met with an obstructionist Opposition.

“But in recent times, the government also hasn’t helped itself, with controversial comments from various BJP members. While Modi has largely distanced himself from the nationalist gibes, the belligerent provocation of various Indian minorities has raised ethnic tensions,” Moody’s said.

The Moody’s commentary comes at a time of increasing controversies over the Dadri killing, growing calls for a ban on beef and the return of awards by writers and scientists protesting “rising intolerance”.

The report cautioned that the controversial comments might lead to violence and also deflect the economic agenda in Parliament.

“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,” Moody’s said.

Moody’s Analytics said for the country to reach its growth potential it had to deliver the promised reforms. In a double whammy for the government, it said the challenges for India were that external headwinds were blowing stronger, and the government had failed to deliver promised reforms.

There were also indications that investors had been less optimistic about India’s economic prospects.

Pointing to the fading financial sentiment, Moody’s said consistent failure to deliver key economic reforms had faded the optimism.

It said India hadn’t been immune to the volatility that had hit financial markets in 2015. The Sensex had fallen around 11 per cent since the euphoria behind the new government propelled the stock market. While global market sentiment had been down, Indian equities had also suffered from a loss in domestic sentiment.

Bank balance sheets were still reeling from the economic slowdown in 2013. Profits slumped earlier in the year, and nonperforming loans hit a 14-year high. Thus, banks were reluctant to expand investment. It explained the little sign of an upward trend in credit growth this year, Moody’s said.

It projected India’s GDP growth for September quarter at 7.3 per cent, and 7.6 per cent for the full fiscal.

“Key economic reforms could deliver greater potential GDP, as they would improve India's productive capacity. These include the land acquisition Bill, a national goods and service tax, and revamped labour laws. They are unlikely to pass through Parliament in 2015, but there is an even chance of success in 2016," Moody’s said.

Sees 7.6% growth this fiscal

Moody’s projected India’s GDP to grow at 7.3 % in the September quarter and 7.6% this fiscal. Closing of negative output growth is likely to be difficult because of external headwinds and the govt’s failure to deliver on reforms, it said