Govt has 'badly lost its way', hurting economy: Moody's

NEW DELHI: The Indian government is the "single biggest factor weighing on business confidence and the economic outlook", Moody's Analytics said on Thursday while revising downwards the GDP estimate for Asia's third-largest economy to 5.5% in 2012-13.

It said the economic slowdown in India was sharper and more broad-based than anticipated and was now deeply entrenched across all sectors of the economy. "There has been little policy response from either the Reserve Bank of India or the government and with the global uncertainty dragging on, we see nothing on the horizon to lift the economy from its funk," said Glenn Levine, senior economist at Moody's Analytics, adding that the second factor was the poor monsoon which was running well below average.

The agency, which is a division of Moody's Corporation, said the slowdown was the most pronounced in the country's corporate sector.

"Confidence among Indian firms has been crushed by weak demand, elevated interest rates, high inflation and most significantly, the instability created by a weak central government that has badly lost its way," Levine said in the report titled 'India Outlook: Below Potential'. The agency lowered the growth estimate for 2013 to 6% from the previous estimate of 6.2%.

In June, global ratings agency Standard & Poor's had cautioned that India could be the first among BRIC countries at risk of losing its investment-grade rating due to slowing GDP growth and political roadblocks to reforms. S&P had said that a divided leadership at the Centre might be the biggest hurdle to reforms.

The deficient monsoon and slowdown in economic reforms have added to the gloom and led to a raft of downgrades on GDP growth for 2012-13.

Moody's Analytics said in its report that the prime minister has one final opportunity to salvage his legacy. "With two years left in office, Prime Minister Manmohan Singh must turn things around quickly or risk becoming a lame duck for the remainder of his term, leaving behind a legacy of missed opportunity," Levine said.

The Congress said the government was taking all steps to enable the economy to return to a high growth path. "All the steps needed for India to return to a high growth trajectory are being taken. However, we cannot be oblivious to the fact that a sluggish global economy does impact us too. But the prediction made by Moody's seems a stretch and perhaps betrays a lack of understanding about the robust fundamentals of the Indian economy," party spokesman Manish Tewari said.

But the Moody's Analytics report gave a fresh handle to the opposition to slam the government on its reforms record. "For all practical purposes, the PM is already a lame duck. He doesn't lead either in Parliament or outside," BJP leader and former finance minister Yashwant Sinha said. "I must confess that I find these comments on India's PM very humiliating. But it cannot be denied that while the government may try and hide the truth from our own people, keen observers abroad are not deceived."

Levine said finance minister P Chidambaram was making all the right noises, with pledges to curb the government deficit and lift business confidence and investment but bold measures were needed to revive and restore the health of the economy.