There are growing signs that the Indian economy is being caught in a pincer movement—rising prices and slower growth. The new inflation and industrial growth numbers offer little comfort.
These are two immediate worries and will dominate discussions on the state of the economy. But there are also longer-term threats that need attention. Credit rating agency Standard and Poor’s has said in a new report that India’s investment-grade rating could be under threat, not immediately but perhaps in the future.
The reason: what the agency rightly calls a “triple whammy of rising inflation and worsening fiscal and current account deficits”.
A credit downgrade is the last thing India needs this year. High oil prices and the growing trade deficit need to be financed with inflows of foreign money. We feel that remittances and the earnings of the software and outsourcing companies will help. But, capital flows from foreign banks and investors too will be needed. A credit downgrade could scare them off. Unless economic growth collapses—which seems unlikely right now—policy should focus on stability and lower deficits. A tough job, considering the weak ground this government stands on.