Home » Business & Economy » Reading investors' mood: why Modi needs to heed Moody's advice
 

Reading investors' mood: why Modi needs to heed Moody's advice

Neeraj Thakur | Updated on: 13 February 2017, 7:28 IST
QUICK PILL

The report

  • Moody\'s Analytics is among the top three credit rating firms in the world
  • In its report on India, it has warned Narendra Modi to rein in BJP and associated fundamentalism

The impact

  • The rising intolerance and consequent protests are harming foreign investors\' mood
  • There\'s a concern that this may lead to the opposition stalling reforms further

More in the story

  • What investors expert from democracies and dictatorships
  • What the govt needs to do to get past its lack of numbers in the Rajya Sabha

In his campaign speeches, Narendra Modi loves to stress that his agenda is development. Last month, he even urged Hindus and Muslims to fight poverty instead of fighting each other.

But, 18 months since his government came to power at the Centre, rising communal tensions and right-wing intolerance have tightened their grip on India.

From cow-slaughter to the murders of writers and rationalists, the situation is such that India is now drawing comparisons to Pakistan and Bangladesh - its neighbours who've never been beacons of peaceful democracy.

The situation is making foreign investors jittery.

Moody's Analytics, one of the top three credit ratings agencies in the world - has asked Modi to rein in the members of his party, "or risk losing domestic and global credibility".

Moody's has asked Modi to rein in BJP members, "or risk losing domestic and global credibility"

Stalling of economic reforms

Foreign investors are not normally known to be concerned about social turmoil in a country. Investors are known to care about money, and not morality or human rights.

After all, countries like China, Singapore and Malaysia - hardly the leading lights of democracy - have received the highest amount of foreign investment in the past two decades.

But, according to economist Surjit Bhalla, the social unrest, and in particular, Union ministers' uncontrolled speeches, have weakened the government's hopes of pushing forward its development agenda.

"Moody's is correct, in the sense that the current government will antagonise the opposition in the country. This will not allow the government to get any economic reforms passed. While investors focus on making profits and aren't very concerned about social tensions, if this situation leads to a stalling of economic reforms, it will impact investments in the country," says Bhalla.

Ammunition for the opposition

With the likes of culture minister Mahesh Sharma and BJP MPs Yogi Adityanath and Sakshi Maharaj leading the way in spewing venom, this has given the opposition a reason to oppose the government inside and outside Parliament.

The government has been on the backfoot in the Parliament, and has not been able to do anything on two major economic fronts - the Land Bill and the GST bill.

Bhalla had criticised PM Modi for maintaining a silence on the lynching of a Muslim man in Dadri, Uttar Pradesh, on the rumour of storing and eating beef. Sharma, on the other hand, had called it 'just an accident'.

"Modi and the BJP should realise that there is a heavy cost to the nation, and to the laudable growth and development agenda, imposed by their illogical stubbornness. So far, the culturally ignorant culture minister, Mahesh Sharma, has not been censured for his outrageous comments. What bets that the Congress will demand his resignation, or else 'no Parliament, no GST bill'?" he wrote in a newspaper article.

The monsoon session of Parliament was washed out, due to constant disruptions by the opposition. Given the current atmosphere in the country, it is unlikely that the government would be able to push through any agenda in future sessions.

A question of perception

The Moody's report, titled 'India Outlook: Searching for Potential' also focuses on the fact that the NDA government does not enjoy a majority in both houses of Parliament.

Moody's currently has a a 'positive' outlook on India's Baa3 rating, the lowest investment grade rating. The rating was given by the agency in the hope of pushing through key economic reforms in the country earlier this year.

However, the position of the government in Parliament and the changing perception in the public eye has forced the agency to warn the government.

The Indian economy is pegged at $2 trillion and is the second fastest-growing economy in Asia after China, a Communist dictatorship often accused of human rights violations.

Santosh Desai, MD & CEO of marketing consultant Futurebrands, explains India's predicament, vis-a vis dictatorships.

"Investors look for political stability in a country. Dictatorships allow companies to make more money without any protests by the people. However, in a democracy, you cannot do that," said Desai.

The Indian government is fast losing its credibility in the eyes of the global community. Desai says perception plays an important role in investors' decision-making. Currently, the perception is one of political instability and uncertainty. This is hurting the government's image abroad.

What Modi & Co. need to do

So far, the NDA leadership has continued to deny allegations of stoking a fundamentalist fire in the country, by calling the protests by writers, artists and scientists "politically motivated".

In the Lok Sabha, the government can still afford to do as it please, since it has over 300 seats. However, since it doesn't have a majority in the Rajya Sabha, it needs the opposition's support to pass important legislation.

Bhalla says: "The NDA has to take the opposition on board and work towards reforms. That is what the UPA did for 10 years. In the current situation, the NDA is not able to manage the floor, and this is costing the government and the country. To clear this logjam, the government needs to control the fundamentalist speeches being delivered by its ministers and convince the opposition to support reforms."

Modi must realise that he has been given a mandate to run a democracy. If he and his colleagues decide to do it with a dictatorial iron fist, even those who don't mind dictatorships will eye him with distrust.

First published: 1 November 2015, 11:44 IST
 
Neeraj Thakur @neerajthakur2

As a financial journalist, his interface with the two dominant 'isms'- Marxism and Capitalism- has made him realise that an ideal economic order of the world would lie somewhere between the two.

Senior Assistant Editor at Catch, Neeraj writes on everything related to business and the economy.

He has been associated with Businessworld, DNA and Business Standard in the past.

When not thinking about stories, he is busy playing with his pet dog, watching old Hindi movies or searching through the Vividh Bharti station on his Philips radio transistor.

PREVIOUS STORY
NEXT STORY