Policy gridlock, red tape hindering investments in India: Standard and Poor's

Flagging off ‘developing challenges’ from the ground, global rating agency Standard and Poor's (S&P) said this week that a policy logjam and ‘red tape’ have hindered investments in India, reports PTI from Mumbai.

The rating agency, which conducted a big data study of three major emerging Asia economies "from the ground up", said that India has a different scenario where corporate earnings have plateaued but debt has continued to rise and investments have slumped.

"We believe policy gridlock and administrative red tape have hindered investment. The challenge now is to unlock the earnings potential of existing assets," S&P said. The comments come within a week of S&P cautioning that fiscal weakness continue to make India's sovereign credit profile vulnerable. S&P has lowest grade investment rating BBB-, just a notch above the junk grade, on India with a stable outlook.

However, another major rating agency Moody's last week upgraded its outlook on the sovereign to positive from stable and said there was a possibility of a rating upgrade from BBB- in 12-18 months.

S&P had, however, said that a financial or a commodity shock may unwind the improvements made so far. "Without further fiscal reforms the government may find it difficult to sustain the increase in public investment spending," it had said.

In its report, S&P said its inaugural "big data" study, wherein it has looked into company-level financial data across four major sectors in China, India and Indonesia, has revealed some developing challenges. These sectors include consumer discretionary, energy, industrials, and materials, which includes mining.

The rating agency has said debt has continued to rise and investments slumped. It may be noted the finance ministry had said that "the country's total external debt rose by USD 15.5 billion, or 3.5 per cent, to USD 461.9 billion during the six-month period ending December, mainly due to increase in external commercial borrowings and NRI deposits."

"The rise during the period was due to an increase in long-term debt such as commercial borrowings and NRI deposits. Short-term external debt, however, witnessed a decline during the period."

In 2014 calendar, companies facing high interest rates in the domestic market, raised a whopping USD 50 billion in debt, out of which around USD 21 billion were in forex debt.

India to clock average annual growth of 7.1 pc in 2015-19: EIU

Meanwhile the Economist Intelligence Unit (EIU) has said that the Indian economy is expected to grow at an average annual rate of 7.1 per cent through 2019, but reform measures announced by the government are "no more than incremental improvements." EIU, which is the research-arm of the London-based publication, ‘The Economist’, credited strengthening of the economy to lower oil prices, saying this has eased structural problems associated with high inflation.

"In its first full Budget, the government pledged more money for much-needed roads and railways and cut some red tape for entrepreneurs. It relaxed slightly some fiscal deficit targets and increased spending on welfare. All of these moves are positive, but are no more than incremental improvements. Owing to a new government methodology for calculating GDP, we now expect growth of 7.1 per cent a year in 2015-19, a full percentage point higher than earlier," the EIU global forecast report said.

The country recently switched to a newer system of GDP growth computation, which made it the fastest growing major economy in the world. Analysts still take the numbers with caution owing to absence of comparable back data. On exchange rates, it said that the oil would continue to exert an influence over emerging-market currencies: those of large producers such as Russia have suffered significant depreciations, while those of importers such as India have shown much more resilience.

The rupee is currently hovering around 62 level against the US dollar at the Interbank Foreign Exchange. The report further noted that "on balance, 2015 should be a better year for global growth than 2014, owing largely to an acceleration in the US, better growth in the Euro zone and an improvement in several emerging markets, notably India.”

Meanwhile, Indian Finance Minister Arun Jaitley, has said that the country has the potential to make 9 to 10 per cent growth rate "a new normal."