When begging does not work.

Oh dear. After all that begging the S&P has not only refused to raise India's credit rating from BBB- but has warned that there is a one in three chance of a downgrade to junk status in the next 12 months. The statement warned that a downgrade could happen if it perceived any reversal of initiatives or worsening outlook on the external sector. " Such a conclusion could come from anaemic investment growth, reversal on diesel or other subsidy measures, or inability to increase electricity supply to meet increasing demands. Similarly, if India's general government fiscal or current account deficits worsen contrary to our expectations, we may lower ratings," the statement said. Predictably government fellows have dismissed the statement as unfair. The Chief Economic Adviser, Raghuram Rajan said," International institutional investors, who have invested $17 billion into India so far this year, do seem to have a different point of view." Economic Affairs Secretary, Arvind Mayaram said," I think we are on the right track and the reform process will continue and therefore I don't think there is anything to be worried about." Typical government talk. We are in charge so you fools can relax. Trouble is that there is a pile of data to be worried about. Growth may improve a little at the end of this year as politicians pour out their black money for the coming elections but with retail inflation still high demand is going to be limited. New project announcements are down 92% from its peak in March 2009 and down 75% from a year ago. Livemint 7 April. Manufacturing is down 87% so how are jobs going to be created? With general elections next year the Congress will resort to its usual tricks of bribing voters with massive social schemes. The Backward Regions Grant will add Rs 450 billion in over 2 years. The Food Security Bill, which the Congress thinks is key for a third victory, will cost Rs 6.82 trillion or $120 billion over the first 3 years according to the Commission of Agricultural Costs and Prices which is a part of the Ministry of Agriculture. That means Rs 2.27 trillion or $42 billion this year. The only way the fiscal deficit can be kept within any limit is if the government uses scarce resources for useless social spending rather than on infrastructure. There will be a 9% shortage of power at peak demand which will shave 1.2% from GDP. As for the Current Account Deficit it was second only to the US at $93 billion and can only be reduced by increasing exports. Our trade deficit was $17.8 billion in April compared to $14 billion last year. To keep CAD within limits and support the rupee the government has encouraged hot money from abroad by increasing limits of investment in government and corporate bonds. A 2 year Non Resident fixed deposit pays interest at 9% while it is being cut for domestic savers. With a World Famous Economist in charge even begging is not working. What an irony!