New York: Minister of state for planning Ashwani Kumar defended India on Thursday, saying its expected growth rates and projects to boost internal trade and development do not warrant a junk status credit rating.
On Monday, Standard & Poor’s warned that India could become the first so-called BRIC economy to lose its investment-grade credit rating citing slowing economic growth and policy inaction for instituting economic reforms.
The rating agency cut India’s BBB-minus rating outlook to negative in April, meaning it expects to make a decision within a 6-24 month time frame. The news knocked the rupee and stocks lower.
A file photo of minister of state for planning Ashwani Kumar.
“People are entitled to ask what are you going to do about delayed decisions, what are you going to do about second generation reforms,” said Kumar.
“But I am appalled by the suggestion of S&P that India is compared with junk status,” Kumar told Reuters.
India reported its worst economic growth rate in nine years for the first quarter of 2012, marking a dramatic slide in world’s second fastest growing economy. Gross domestic product growth slowed to 5.3%, from 9.2% in the same period a year ago.
“I recognize that our last-quarter GDP growth figures at 5.3% have not given us any comfort,” Kumar said during a visit to the United States.
He reiterated a government growth forecast of 7% in 2012, and said that despite the difficulties of the global economic situation, India expected an average annual growth rate of 8.5% between 2012 and 2017.
Others see problems with India
It is not only S&P that has said India is not firing on all cylinders. On 11 June, the Paris-based Organization for Economic Co-operation and Development said India’s economy was showing signs of faltering.
The OECD said its composite leading indicator for India dropped below the average for the 33 nations assessed.
Kumar said he found it difficult to reconcile how S&P, a firm that had “espoused India as the compelling growth story of the century, has now chosen to go to the other extreme.”
“There are issues about the perception of decision-making being irretrievably bogged down. But I can assure you that neither are we captive to an unending log jam, nor are we going to be charged with muddling our way through,” he said.
Prime Minister Manmohan Singh’s government has blamed much of the economic slowdown on outside factors such as Europe’s economic crisis.
“To the extent our economic reforms are not taking place, we cannot blame on the foreign economic situation,” Kumar said. “(To) the extent that we have to resolve governance issues, we are not going to invoke the foreign economic situation. But it is a fact India is impacted by the European crisis,” he said.
Many economists and investors, some of whom have decided to leave India because of regulatory uncertainty and policy gridlock in the coalition government, blame weak leadership for India’s economic rough patch.
“We are not in denial and we are realistic.” Kumar said. “At the same time we have no reason to be unduly pessimistic because we are aware of the strong fundamentals of the Indian economy.”
He pointed to a $100 billion commercial rail freight corridor due to be built between New Delhi and Mumbai as evidence of economic growth boosters to come.
Kumar said he expected the weakening rupee to find some equilibrium soon.
“We are confident in the view that the moderation of crude oil prices will soften the pressure on the Indian rupee and over time it should stabilize in the coming 3-5 months.”
“The food inflation is a cause of worry, but I understand they are moderating. So, the moderation of the commodity prices and the oil prices will soften the pressure on the rupee.”