New Delhi, Mar 3: Possibility of a hung parliament and the prospects of a definite slowdown in the economic reforms process on account of unclear verdict by the people, will jepoardise the chances of India getting a favourable treatment by the international credit rating agency Moody's which has declared its intention to downgrade the country's rating.Moody's Investor Services, it may be recalled, had threatened to place India below investment grade, but withheld its decision in view of the general elections to the 12th Lok Sabha. The agency had earlier changed country's outlook from stable to negative.
The officials of the rating agency, who were in India recently, held the view that there was 10 per cent chance of India getting a favourable treatment by the agency depending upon the election results and the policy pronouncements of the new government.
It was hoped that a clear verdict and the prospect of a stable government with the requisite strength to take tough decisions and carry forward theprocess of fiscal consolidation and economic reforms would prompt the agency to rethink its decision about downgrading country's rating.
However, with the election results pouring in, it has more or less become clear that there would be hung parliament and only a weak government with all kinds of political compulsions would be in place. This, in all likelihood would prompt Moody's to carry out its threat of placing India below the investment grade.
Also the CSO advance estimates have indicated that the economic growth rate would slide from 7.5 per cent to 5 per cent during the current financial year. The manufacturing sector will also witness a lower growth rate. Poor exports will put further pressure on the external front. The high interest rates is also expected to add to the problems of the industry struggling to overcome the recessionary phase.
All these economic indicators, coupled with a hung parliament, would weaken the case for India to get a favourable treatment by the international ratingagency. India, it is hoped will not be an exception as had happened in case of the kingdom of Spain. As far as Spain was concerned, it might be recalled that Moody's decided to retain the rating after declaring its intention to downgrade it.
The experts, it was stated, later reached the conclusion that Spain's rating did not merit a downscaling.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
