Millennium Post

Economy and politics: An inseparable pair

The Congress party’s angry outburst against Goldman Sachs for linking its latest upward rating of India from ‘underweight’ to ‘marketweight’ in anticipation of a BJP’s Narendra Modi-led government in Delhi in 2014 as undesirable and unacceptable meddling in domestic politics by the US global investment banker challenges the very fundamental concept of ‘country rating’ by professional international economic and political intelligence gathering agencies and institutions. Would Commerce Minister Anand Sharma come down equally heavily on Goldman Sachs if the latter reasoned its Indian market upgrade in anticipation of another Congress-led government at the Centre in 2014? Would that have been considered as a foreign interference in domestic politics?

Ironically, international rating agencies had backed a UPA return to power before 2009 Lok Sabha elections in the wake of India’s clocking a decent economic growth during its first term and the Manmohan Singh government’s outright defiance of objections from its biggest ally in Parliament, the combined group of Left parties, to the Indo-US civil nuclear cooperation agreement. At that time, no one, not even the Left group, had foul-mouthed those global rating agencies accusing them of political meddling in the country’s domestic affairs before the elections. Had the global investment banker linked its higher market rating with the UPA’s possible return to power for a third inning, most likely Anand Sharma and the Planning Commission deputy chairman would have thumped their chests in pride and joy and condemned more vehemently those homegrown pollsters whose opinion polls are consistently predicting falling Congress fortunes in the hustings.

However, there is no denying of the fact that Goldman Sachs’ rating of the Indian market, along with certain subtle and covert musings by other international agencies suggesting a possible change of India’s national government next year, had pumped up global sentiments and trust in Indian stocks as foreign financial institutions (FIIs) rushed over $4.5 billion to invest in large, mid and small-cap stocks in just about 40 days of trading. The investment helped stabiliae Indian Rupee’s exchange rate between Rs 61.50 and Rs 62.50 to a US Dollar from a position of around Rs 67 to a Dollar in September. Sharma’s undiplomatic outburst may once again bring the market and Rupee down putting the Congress-led government under a bigger economic stress before the election, which is still a good five-six months away. The Sensex had shed nearly 1,000 points since Sharma’s snub at Sachs’ and made Dollar dearer.

Although the commerce minister may be right in his assessment that the US investment banker’s mention of a possible post-2014 BJP-led government will have a negative impact on the Congress party’s poll campaign and it does amount to foreign meddling in domestic politics before a vital national election, but the stark reality is global investors, who have sunk in over $200 billions in Indian stock market and almost a similar amount in foreign direct investment (FDI) following the capitalist reform by another Congress government in 1992 at the behest of the World Bank and International Monetary Fund (IMF), have a big stake in India’s domestic politics as well. Over the period, FII monsters have taken some 70 per cent control of India’s stock market. Therefore, they can’t be simply wished away by India’s political parties without inviting severe consequences on the country’s economy even if they cross the line of business and diplomatic decency. Congress and some other political parties may lobby with the Election Commission to ban pre-election opinion polls instituted by the Indian media, but they could do little to prevent global rating agencies from airing their views on India and its government since international investment banks, multinational corporations and countries engaged in trade and commerce with India have a large stake in the success or failure of India’s two-trillion-dollar economy in terms of normal GDP.

India’s external debt at the end of the first quarter of the current financial year was $388.5 billion. It would be rather naïve on the part of political parties to expect foreign lenders remain unconcerned about which way the political wind is blowing in the run up of India’s national election and the profile of its next government.

Incidentally, Goldman Sachs is not the only one to bet on a national-level regime change in Delhi although it may be accused of being openly blunt about basing its higher stock market rating on a possible BJP-led national government after the Lok Sabha polls. Standard and Poor’s (S&P), the world’s biggest sovereign rating agency, has threatened to review its perception on India after the 2014 polls. S&P is always free to review its India rating. The agency can do it even now. Why is it linking the review with the poll result? Does it not suggest that India may get a higher rating if its next government is led by a strong right wing political party which with MNCs may find easier to cozy up? Or, the country would be doomed to a lower grade if the same scam-tainted UPA government returns to power.

Moody’s, the second largest global sovereign rating agency, which had last week affirmed the ratings of India’s three large private banks, ICICI, HDFC and Axis, has warned that the current economic slowdown may affect their future corporate exposures. Doesn’t the warning carries a hidden message against the UPA regime, the loss of grip over the government and decision making process by which are widely seen as responsible for the country’s economic slowdown? Notably, all the three global agencies are based in the US, with which the Congress-led UPA government is believed to have best diplomatic relations.
Economics and politics are inseparable in the present day world which has made economic and political intelligence gathering and market surveillance a commonplace among global economic powers for their own selfish reasons to insulate individual countries and institutions from impacts of policies and perceptions of governments and top political leaders in other countries. It must be recognised that India’s economy has many global stakeholders such as exporters and importers as the country’s foreign trade now exceeds $700 billion, investors (FDIs and FIIs), creditors, project constructors, business and engineering consultants, tour and travel organisers, etc., apart from powerful national governments such as the US, China, Russia, the UK, the EU, Japan, South Korea and Australia, which are involved in bi-lateral aid and investment programmes with India. They are constantly gathering political and economic intelligence on India to avoid surprises that could negatively impact their interest. The earlier our political leaders and parties grow up and accept these realities, the better it is for the country.

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