S&P argues "political patronage" stifles growth

Vol 5, PW 13 (15 Aug 01) People & Policy

Standard and Poor's has slammed the Indian government's handling of public finances, with sharp criticism of the country's tradition of political patronage.

Vested interests, argues S&P, continue to thwart public-sector reform. The countrys political leadership, cutting across all parties, remains reluctant to forego patronage opportunities that arise from a bloated public sector, undermining the credibility of Indias beleaguered privatisation program as only two of 240 government enterprises have been sold, said S&P in a statement released 7th August.

"The cost of tardy and shallow reform is seen in Indias poor physical infrastructure." Chronic power shortages constrain growth, adds S&P, and are unlikely to be alleviated without a reversal of populist policies, particularly providing free electricity." Adds the statement: "Indias government budget deficit, which includes both central and state governments, is likely to exceed 10% of GDP in the current year. The government debt could approach 70% of GDP, or more than 400% of revenues - higher than in most similarly rated countries.

S&P's downgrade reflects similar warnings issued at the height of India's financial crisis in 1991. S&P lowered its long-term local currency sovereign credit rating of India to BBB- from BBB, implying a change in the country outlook to negative from stable.