Narendra Modi cracks the good economics-politics riddle
New Delhi: The Modi government has finally resolved the dilemma that has often troubled policymakers and politicians alike since India embarked on the path of liberalisation in 1992.
Can good economics also result in good politics has been a question that has haunted every government for the past quarter century. Electoral debacles have for long reinforced conventional wisdom that economic reforms aimed at bringing in macroeconomic stability usually do not get thumbs up from the electorate.
However, past few days has for the first time turned the conventional wisdom on its head. The US-based Pew Research in its survey released Thursday that almost nine out of 10 Indians hold a favourable opinion of Prime Minister Narendra Modi and more than two-thirds are satisfied with the direction in which he is taking the country.
Modi’s rating of 88% includes 69% people who express a very favourable opinion of him, said the Pew survey. Moreover, this number was 31 percentage points higher than that for Congress president Sonia Gandhi. The positive political response comes barely 18 months before the country goes to the next general elections. Usually, a government in fourth year in office faces anti-incumbency for its failure to meet people’s expectation, largely driven by non-acceptance of economic policy push.
The government has for the past several months been facing sharp criticism for demonetisation and introduction of Goods and Services Tax, billed as the largest indirect tax reform since independence. There has been concern over economic slowdown and the adverse impact of the move on the informal sectors.
However, Moody's Investors Service ("Moody's") Friday upgraded the Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. Moody's has also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. This is first upgrade of the India by Moody’s since 2004 and comes as a major boost to the government policy direction.
The decision to upgrade the ratings is underpinned by Moody's expectation that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term. In the meantime, while India's high debt burden remains a constraint on the country's credit profile, Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.
Moody's has also raised India's long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.
With such wide raging political and economic approval, a rarity in Indian political set up, the race for 2019 general elections appears to be a one-race horse.
Indian politics and economy seem to be entering a completely new zone.