Ratings agency Standard & Poor’s (S&P) has called India the only bright spot in the Asia Pacific region in an otherwise shaky finish to year 2014 with all other economies losing momentum.
“Only India is bucking the trend,” said S&P in a report on Asia Pacific region’s credit outlook released on Tuesday. “India has been the region’s brightest spot,” it added.
The reason for its sunny outlook for India was PM Narendra Modi’s government that, the agency said, has picked up the pace of reform after a “modest” start.
This marks a sharp turnaround about India’s image as an investment destination among overseas analysts who had been unsparing about their criticism of the previous UPA government’s management of the Indian economy, hit by a policy standstill, corruption scandals and tax disputes.
The agency said that while China’s economy continues to slow, Japan is in “technical recession” and trade-dependent economies continue to suffer from lack of external demand.
Asia’s third-largest economy is showing signs of clawing out of its longest slump in a quarter century, and the raft of measures that Modi has announced has raised hopes that the government will be able to engineer a quick turnaround.
The government has vowed to remove red tape, ease rules, and pledged a non-adversarial governance regime to push companies to make India a manufacturing powerhouse through initiatives such as `Make in India’.
S&P upgraded India’s credit rating to “stable” from “negative” in September, by which time most of Modi’s announcements and measures were under way in various forms and stages.
The agency proceeded to list them: ending diesel subsidy, liberalizing foreign investment in insurance, and controlling discretionary government spending.
The agency also noted some of the programmes announced by Modi — financial inclusion by opening bank accounts for 100 million people who didn’t have one, streamlining government-transfer payment regimes, improving rural infrastructure, and cutting the number of government departments.
S&P welcomed the decision for “eliminating the planning ministry”. In August, Modi had announced the government’s intent to replace the Planning Commission with a new body, bringing the curtains down on the 64-year old institution founded on former Soviet Union’s command-style development model.
“Confidence has improved and growth momentum is now at around 7%,” said the agency, adding, however, a note of caution: “the build-up of corporate, and in some cases household, debt over the past five years remains a significant ‘tail’ risk,” S&P said on Tuesday.
The World Bank said in June that the India is already “benefiting from this ‘Modi dividend’ … with economic activity buoyed by expectations from the newly elected government”.