Fiscal deficit has tainted India's standing in world, say experts

Mumbai: Global private equity major Kohlberg Kravis Roberts (KKR) has said the fiscal and current account deficits have “tainted” the country’s standing in the world and asked for urgent steps to revive investor sentiment.

“Sentiment surrounding the country tends to vacillate between euphoria and despair. Five years ago, India could do no wrong; today, it can do no right,” KKR head for global macro and asset allocation Henry McVey said in a report.

[caption id=“attachment_559210” align=“alignleft” width=“380”]  It asked the policymakers to invest more in infrastructure, tackle inflation and cut subsidies. Reuters[/caption]

The report by KKR, known for its buyouts, was prepared after a visit to the country. The report identified high inflation, lack of infrastructure investments, high deficits and government dysfunction as the factors which have “tainted” the country’s standing and performance, particularly when compared to its potential.

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It asked the policymakers to invest more in infrastructure, tackle inflation and cut subsidies to balance the fiscal situation.

KKR also flagged compulsions attached with general elections in 2014. “Given elections in May 2014, there is a high probability that 2013 will be used by politicians to win favour with their constituents,” it said.

According to an August 2012 news report, KKR is contemplating to launch its first India-specific debt fund of up to $1 billion. Through its private equity presence, it has quite a few investments in the country across sectors. “A key to success in the country centres on investing prudently alongside macro themes that have enough momentum to overcome the inevitable challenges in an emerging market of this size and complexity,” the report by McVey, titled ‘India: Unlocking the demographic dividend’, said.

It may be noted that after growth rates of over 9 percent till the global credit crisis, the economy started heading south. While last fiscal GDP grew by poor 6.7 percent, in the first half of this fiscal, GDP clipped at 5.4 percent with the Q2 reading being the lowest in the past seven years.

Higher fiscal deficit and lower growth coupled with high current account deficit has seen global rating agencies threatening to junk the sovereign rating. After reporting a high 5.7 percent fiscal deficit last fiscal, while current account deficit had hit a high of 4.3 percent. This year, the government is targeting to bring down fiscal deficit to 5.3 percent, while CAD is headed to be over 4 percent.

PTI