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Dec 13, 2012

Indian Economy: Threat of Downgrade Rating

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Indian Economy
The world economy is reeling under the economic slowdown so as the Indian economy. There are threats for it to get downgrades from various rating agencies in the days to come. The macroeconomic growth has been a big concern.

The global rating agency Standard & Poor has a rating of BBB (Minus) on India. And there are chances of downgrade if Indian economy will be in further dim growth prospects by next couple of years.

Following reasons could be major to avoid any downgrade further:

Fiscal Deficit:
Fiscal Deficit could be the first major reason for such speculations. According to media reports the fiscal deficit of Indian economy for 2012-13 could be 5.5-5.6 per cent of GDP. That is much higher from the 5.1 percent target. But it may be lower than last year’s figure are 5.8 per cent.

For the government it is very hard to keep the fiscal deficit low because of the subsidies on various sectors. In order to avoid and downgrade from rating agencies, the government would look for options to check the fiscal deficit either bringing more economic reforms or borrowing extra fund from the market.

The Union Budget 2013-14 will be present by the finance minister in March 2013. And the budget will give the clear picture of the growth of Indian economy.

High Inflation Rate and Internet rates:

The high inflation rate in India could be the second major concern for the UPA government to address. The annual rate of inflation (WPI) was at 7.45 per cent (provisional) in October 2012, while it was at 7.81 per cent (provisional) in October 2011.

The apex bank, Reserve Bank of India, will review its credit policy on this week, and it may try to adjust the interest rates to tame the high inflation rates keeping the interest of the investors in India.

There might be some changes in the interest rates to boost the liquidity in the market. The apex bank may infuse some more money in to economy to check the high inflation rates.

Economic Reforms & Obstacles:

The Foreign Direct Invest in retail has been through in Parliament last week by voting followed by two days long debate. It shows that the economic reforms could help the economy to stand and face the economic slowdown, but the path is not easy job for the government to act on.

Despite after the getting the nod of the Parliament over the FDI in retail, still the road for reforms not clear for the government which has been facing the opposition over the lobbying matter. The process of the economic reforms may see slow progress as only two years left for the General elections in India that is going to be held in 2014.

Political Scenario:

The current political scenario has been the major concern for the investors to keep their interest up on the stock markets. The coalition politics has been the recent trend in Indian political system for last decade. But for major improvement in the rating, there should be a stable government, which should be free from pressure of any ally to initiate any reforms.

It does not matter which party is going to form the government but the concern is how strong it would be to carry forward the Indian economy further towards growth.

The bottom-line is the growth rate of Indian economy is completely depending upon the government mechanism to check inflation, fiscal deficit, debt burden.


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