Economic Crisis in India
After India survived the Dotcom bubble in 1997-2000. Enthusiastic investment bankers and financial research analysts were tom-timing the “India-shining “story . They forecasted that India would become a major superpower within the next few decades . They forecasted India to grow at an annual rate of 10 %. Billions got invested into India and the sudden influx of money led to some growth .
But certain fundamental questions whether this sort of growth would be sustainable in the long run or not, is the infrastructure in the place ,are the taxation and environmental leslies conducive to growth were ignored because it was all masked by the temporary spurt of growth . Since none of the fundamentals were in place the money coming inside the country could barely do anything . Though a few projects happened and their products sold well but eventually growth petered out.
The government on started spending more then its earning and import bills began to rise steadily . This led to an adverse balance of payment position with the present Current Account Deficit lingering at a dangerous 4. 8% of the GAP . Whereas the banking sector began pumping the economy with more notes which led to inflation
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Is the present Indian economy in the midst of an economic crisis? Yes , we are whether the government would like to admit to it or not . How else would you describe a situation where economic growth has collapsed, industrial output has designated for two years, Jobs are being shed, consumer inflation is close to 10 per cent, gold prices are rising by the hour , the current account deficit in the balance of payments is nearly five per cent of GAP and the rupee is touching new lows (or highs against the dollar! ) each week?
The Indian rupee has been driven to a new all time low of Errs to a dollar and it seems poised to cross the psychological barrier of 70 . Landfall ,questions are being raised if RSI 70 to a dollar will be the new normal largely due to the huge current current account deficit and the decline in economic growth . The RIB and the Central Government seem to be running helter-shelter trying to boost the growth rate and to reduce inflation . Their attempts at controlling the exchange rate seem to be measures that treat the symptoms rather than the disease .
Gold is one of the biggest items in a record current account deficit that has helped push the rupee to an all-time low, and as New Delhi scrambles to stop the decline it has taken measures to curb gold imports and consumption. Gold prices have steadily been rising and don’t seem to reduce anytime soon . Fuelled by the current demand old prices seem to hit new highs every passing day . While dithering on matters of economic policy , government NAS chosen to tacos on unattainable policies and subsidies in order to gain people’s trust and try to diverge public attention from the faltering economy .
The latest in this trend is the rather ambitious Food Security Bill, which is expected to cost the Government excess of RSI core. Inspire of protests from various economists and the public at large over its ill timing and looming unavailability the government seems hell bent on implementing this new Bill. The prolonged regulatory process of environmental clearances and the difficulty in land acquisition have made the industry and many other MAC’S rethink their investment and expansion plans in India .
This has further led to prevention of valuable foreign exchange inflow into India while the CAD keeps on increasing and the manufacturing sector growth slows down further . Largely compelled by government lethargy, the Supreme Court has been compelled to intervene in policy making . This has further spooked investors . Sectors ranging from telecoms and mining to pharmacy and real estate have been left shaken . Even the star of Indian’s rise in the last decade the telecoms industry now in doldrums on account of the double whammy of ever ranging regulations and consequent SC actions .
Since the 26 scam decision by the SC only a very brave telecoms operator/foreign investor would like to venture into what would be a legal landmine . The manufacturing sector which are the wheels of the Indian economy continue to remain in distress . Top US bank JP. Morgan cut the growth estimate from 5. 1% to 4. 1%, while global financial services firm Mural expects the economy to grow 4. 2% in 2013-14 . New investments in this sector are virtually on hold as the top firms have said that they have no major investment plans in the current year .
The survey finds that the major growth barriers expected are higher interest rates, lack of domestic demand and other concerns like pressure for increased wages, legislative or regulatory pressures, decreasing profitability and increased competition from foreign markets. I can go on citing instances as industry after industry in India is reeling under the vicious cycle of government inaction and unprecedented Judicial activism . From the above instances of various sectors ranging from telecoms to manufacturing it is clear that urgent economic reforms are the need of the hour to prevent another 1991 like situation .
Various steps have to be taken by the Central Government as well as the Reserve Bank of India to salvage the economy . Policy makers should focus on new long term solutions instead of short term populist measures . The economic numbers are bad enough . Now we are approaching something much worse that is -a crisis of confidence among both foreign and domestic investors . The foreign investors who invested millions in India are now nowhere on the horizon due to the unreliable regime and red tape in India .
The protests over allowing 100 % Foreign Direct Investment in retail sector as well as the protests by Farmers against the proposed Pedant Mining plant in Arioso have further spooked other Mac’s from investing in India . This trust which investors have lost will take years to rebuild and regain . Unless the Government does something fundamental and drastic to restore confidence among investors and the public in general , the economic scenario will only worsen in the years to come. One of the surest ways to revive a sagging economy is to prompt households to spend more .
The best way to achieve this is by giving more money in people’s hands through tax breaks . It is also critical to fastback intercultural projects like roads ,ports, airports and railway projects to creates Jobs and raise non-farm incomes . It is also imperative to catalyst large scale industrialization across India . The 1483 -km long Delhi -Iambi industrial corridor and few other projects should be accorded the highest priority because they potentially can spin millions of Jobs .