NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, April 17, 2015

Flagging off “developing challenges” from the ground, global rating agency Standard and Poor’s on Thursday said a policy logjam and “red tape” have hindered investments in India.

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.