Flagging off "developing challenges" from the ground, global rating agency Standard and Poor's today said a policy logjam and "red tape" have hindered investments in India.
The rating agency, which conducted a "big data" study of three major emerging Asia economies "from the ground up", said that India has a different scenario where corporate earnings have plateaued but debt has continued to rise and investments have slumped. "We believe policy gridlock and administrative red tape have hindered investment.
The challenge now is to unlock the earnings potential of existing assets," S&P said. The comments come within a week of S&P cautioning that fiscal weakness continue to make India's sovereign credit profile vulnerable. S&P has lowest grade investment rating BBB-, just a notch above the junk grade, on India with a stable outlook.
However, another major rating agency Moody's last week upgraded its outlook on the sovereign to positive from stable and said there was a possibility of a rating upgrade from BBB- in 12-18 months.
S&P had, however, said that a financial or a commodity shock may unwind the improvements made so far. "Without further fiscal reforms the government may find it difficult to sustain the increase in public investment spending," it had said.
In Thursday's report, S&P said its inaugural "big data" study, wherein it has looked into company-level financial data across four major sectors in China, India and Indonesia, has revealed some developing challenges.
These sectors include consumer discretionary, energy, industrials, and materials, which includes mining. The rating agency has said debt has continued to rise and investments slumped It may be noted the finance ministry had said that "the country's total external debt rose by USD 15.5 billion, or 3.5 percent , to USD 461.9 billion during the six-month period ending December, mainly due to increase in external commercial borrowings and NRI deposits." "The rise during the period was due to an increase in long-term debt such as commercial borrowings and NRI deposits.
Short-term external debt, however, witnessed a decline during the period." In 2014 calendar, companies facing high interest rates in the domestic market, raised a whopping USD 50 billion in debt, out of which around USD 21 billion were in forex debt.
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