Agency slams the country for its infrastructure and policy that have slowed down investments
Credit rating agency Standard & Poor's pared India's growth forecast for the current fiscal by a percentage point as part of its Asia-Pacific review, slamming the country for its policy and infrastructure that have slowed down investments.
In a note released on Monday, the agency cut India's expected growth in 2012-13 to 5.5% from 6.5%, in line with the April-June quarter growth of 5.5%. S&P also cut China's growth to 7.5% from 8% for 2012 calendar.
S&P had in April lowered the outlook on India's sovereign debt to negative from stable, giving a one in three chance that its long-term BBB- rating could be cut to below investment grade on its high fiscal and current account deficits among a host of macro-economic concerns.
"The lack of monsoon rains has affected India, for which agriculture still forms a substantial part of the economy. Additionally, the more cautious investor sentiment globally has seen potential investors become more critical of India's policy and infrastructure shortcomings," the agency said in a note that is silent on the recent burst of reforms.
In the last fortnight, the government has raised diesel prices, cut subsidies on cooking gas, allowed foreign investment in multi-brand retail and announced a host of other measures to spur investments. The reduction in subsidies is expected to reduce fiscal deficit by 0.2% of GDP while the strengthening currency will help lower inflation as imported inputs and fuel become cheaper.
Prime Minister's key economic aide and former central banker C Rangarajan stuck to a more optimistic note. "Our own forecast is that the growth rate of economy in the current (financial) year will be 6.7%, that is a better shape than last year. I think, the growth will pick up in the second half of this year....Agriculture performance this year would also be better than what was expected a few months ago..." Rangarajan told reporters in Chennai.
S&P has said India's slower growth is a combined result of a 15% deficit in rainfall for June-September and worsening of the eurozone, but official estimates place the rainfall deficiency much lower at 5%. "Those countries with relatively high export flows to the eurozone include China, India, Japan, Taiwan, and Vietnam," it said.
On a positive note, S&P says India will also benefit from the lower commodity prices because of the slowdown. "This reduction should help to lower inflation risk, and it will also reduce pressure on some Asia countries that subsidise fuel (such as India), but at the same time it will negatively impact commodity-dependent exporters (like Australia)," it said.  |
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