Fitch Flays Lack Of Good Human Infrastructure

Raising the money needed to upgrade the country's infrastructure will require good human infrastructure in the form of "independent and incorruptible regulators", according to Fitch Ratings India's latest economy update.

It also said the physical infrastructure in India leaves much to be desired and the current state acts as a major impediment to realise the actual growth potential.

India has shortcomings in two types of infrastructure categories -- the traditional sort, which includes roads, power grids, ports, telecommunication etc, and the human kind, which includes courts, bureaucracy and politics, Fitch added.

Protection which was given to small firms prior to liberalistaion has now become an impediment. Small companies lack the access to credit and marketing budgets to scout for new customers. Also, smaller size prevents leveraging that is needed to face competition.

 

"A number of factors are holding back the Indian industry from achieving the desired growth, which has the potential to absorb the ever-increasing workforce. India desperately needs the second generation reforms to come through rather than mere lip service from the leaders,' says Fitch.

The business environment in the country has not improved to the extent desired even after a decade of reforms. The industry needs to grow at a faster pace in order to increase its share in the country's gross domestic product (GDP) so as to absorb the increasing labour force.

The restructuring in the Indian economy has not been of a type that has created more labour intensive productive activities, the rating agency said.

According to Fitch, the fault lies in not the reforms but with what the reforms have failed to achieve like reform of bureaucracy, consistency in policy measures due top reasons political or otherwise (for instance, Enron imbroglio), which adds to the risk of doing business.

Fitch has also said that that problems confronted by UTI and IFCI, apart from the Ketan Parekh saga, demonstrated the systemic weakness in the economy.

It added, "... the way the UTI and IFCI issues are being handled reflects the inability on the part of the government to carry out second generation reforms to their logical conclusion."

The decline in crude oil production and firming up of the fuel price will adversely affect India's import bill. Also the raising prices will hamper the world economic growth by dampening the already weak demand for crude oil and may also lower the pace of recovery of all economies from the present recession.

Fitch has also questioned the sustainablity of domestic demand of passenger cars given that the underlying economic condition is weak. Also, the increase in sales of passenger cars, which grew by more than 100 per cent both in first quarter of the fiscal as well as in June 2001 was attributed to increased exports.