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Weak govt biggest drag on India's growth: Moody's

Last updated on: April 26, 2012 10:00 IST

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BS Reporter in Mumbai

Moody's Analytics has said owing to a weak government, the Indian economy may expand substantially below its potential of 7.5 per cent in 2012.

It has blamed lack of political will for the slow reform process and said the United Progressive Alliance government didn't have the numbers or the leaders to push through tough-minded reforms needed to drive the next wave of growth.

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"Manmohan Singh is an ageing technocrat who now appears tired of the rough and tumble of Indian politics. This leaves the national reform process in limbo," said Glenn Levine, senior economist, Moody's Analytics.

Risks were still tilted to the downside because of the dire political situation, though there were some reasons for optimism.

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Economic growth is likely to hover at about six per cent through the first half this year and a steady upturn in activity may lift second-half growth to 6.5 per cent, said the analytics arm of the rating agency.

It said in midst of negative news, there were two events that offered hope for the economy, the Reserve Banks of India's decision to cut the repo rate by 50 basis points and prediction of average monsoon rains this year.

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The agency said the single biggest factor weighing on the outlook was the Indian government.

The wave of government reforms and opening up sectors through the 1990s lifted gross domestic product growth to more than eight per cent before the global financial crisis.

However, since then, these have stopped.

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The Congress-led UPA returned to power in 2009. This meant a strong mandate to accelerate the economic reforms begun in the alliance's first term.

However, weighed down by corruption and funding scandals, it has passed no notable Bills.

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Levine said the government had lost all momentum. Progress on existing Bills covering pressing issues like land reform, fuel subsidies and labour rights are unlikely till the national elections in 2014.


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