In These New Times

A new paradigm for a post-imperial world

Setback to India – and to BRICS

Posted by seumasach on April 28, 2012

He batted in particular as the leader of BRICS. But hardly had Mukherjee landed back in the Indian capital, news broke that Standard & Poor has lowered India’s sovereign credit outlook to ‘negative’ from ‘stable’. Within hours, bonds fell in Mumbai, stocks declined and the rupee slumped.

It is indeed no surprise that the empire seeks to punish those who challenge it, but the West’s game is far too transparent, far too bereft of finesse to impress anyone. S&P have no serious standing as they are entirely at the service of the Wall Street/City of London gang whose game is reduced to a series of entirely predictable moves which the whole world is learning to counter. Look to the establishment of new rating agencies, perhaps on the basis of Euro-Brics collaboration over the next year or two.

M.K.Bhadrakumar

Indrus

26th April, 2012

‘What goes up must come down’ is an elementary principle in physics ever since Isaac Newton wrote about the law of gravity. But the variant, ‘The feather in the wind will come to earth’, may in this case be more applicable. From various accounts, Finance Minister Pranab Mukherjee seemed a star performer at the meetings of the finance ministers of the World Bank, IMF and the G24 – and the BRICS, of course – in Washington. Things were looking really good.

He batted in particular as the leader of BRICS. But hardly had Mukherjee landed back in the Indian capital, news broke that Standard & Poor has lowered India’s sovereign credit outlook to ‘negative’ from ‘stable’. Within hours, bonds fell in Mumbai, stocks declined and the rupee slumped.

The two happenings – the grandstanding by India lately as an ‘assertive’ emerging power and the S&P’s highlighting of India’s great vulnerabilities – followed one another as naturally as the night following the day. The coincidence might be striking, perhaps. But experts say S&P decision didn’t come as a surprise. In fact, Mukherjee himself says there is no need to ‘panic’.

What will certainly hurt is if S&P proceeds to cut India’s long-term rating BBB, which is already the lowest investment grade. If that happens, borrowing money will become problematic. The S&P statement spoke of “at least one-in-three likelihood of a downgrade” that would, if it happens, literally brand India as a junk economy.

The yardsticks for S&P will be India’s diminishing growth prospects, budget deficit, slow progress of reforms and the “current unfavorable political environment”. Indeed, things look uncertain and the government is drifting and confidence is lacking if India would measure up to the S&P’s standards.

India’s budget deficit at 5.9 percent of GDP in the last fiscal year (2011-2012) was the widest among the BRIC countries. But any ‘reform’ that cuts subsidies will be politically risky for the government and may be resisted by even the constituents of the present coalition ruling India. The fragility of the political environment is such that even the election of a president and a vice-president is becoming the stuff of ‘give-and-take’ .

Things can only change after the next general election (slated for 2014) under a new government with a fresh mandate. Amidst all this political uncertainty in India, a question mark may be put on India’s capacity to lead the BRICS’ assault on the Bretton Woods. Indeed, there is a lot of unease in the West about what the BRICS is up to. And India now becomes the weakest link in the BRICS (leaving aside South Africa).

Indeed, S&P reflects the western opinion of India’s political economy and there is going to be a lot of western pressure on Indian economic policies in the coming period.

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