April 28, 2012
Who’s right: Standard & Poor’s or Montek Singh Ahluwalia?
S&P has warned of a 1/3rd chance of India achieving junk status (from BBB-, the LOWEST S&P rating) in the next two years, and downgraded India from stable to NEGATIVE.
Montek Singh has come out strongly, affirming that India remains a positive growth story.
Here are the underlying facts: slowing growth, increasing fiscal deficit.
So who is right? The independent S&P or the deeply conflicted Montek Singh?
I've just returned from an India trip in February and my sense is that India is reaching a dead end in terms of infrastructure. Everything is creaking and groaning under the weight of mismanagement. All arterial roads (and indeed almost ALL) roads are jam-packed. Water supply scarcity and power scarcity are endemic. Tempers are fraying all around and one can sense GREAT INEQUALITIES.
From what Gurcharan Das told me, there is a sense that decision-making has come to a standstill. There is severe paralysis, in addition to incompetence.
Virtually all the gains from the 1991 reforms have been exhausted.
There are no fresh governance reforms on the anvil, and the few that were floated (e.g. FDI in retail) have been shelved. The regulatory straightjacket that affects the poorest of the poor remains unchanged. People like Anna Hazare and Arvind Kejriwal, who are occupying prominent places in the political spectrum, have NO REFORM GOALS for India. I've tried to influence Arvind Kejriwal, but my trip to meet him was wasted. He has not responded. He has not even met Gurcharan Das yet – a request separately made to him.
India's socialist policymakers (I include Montek Singh among them, although I have relatively more praise than condemnation for him – However, he was presented my book BFN long ago – by a relative of mine who is his golf buddy – but did not bother to contact me to discuss any policy issues) are stymied by DEEP CHRONIC CORRUPTION at top levels in government, and the public pushing back hard on that. The alternative 'king-makers' are deeply socialist as well.
So despite my reluctance to view India's future poorly, I'm more inclined to support S&P than Montek.
Let Pranab Mukherjee note that this (S&P downgrade) is not a wake-up call. The wake-up call was on 14 August 1947. The FOOLS who govern India have not woken up yet. I doubt if S&P can wake them.
FTI remains the ONLY hope for India, but it is too small at present to count.