By Ravi Kant (Edited by Anish Sahni , Assistant Editor at The Indian Economist)
The New Year has brought a lot of pessimism to India. The figures have gone for a downhill stroll and the key macroeconomic indices continue to remain weak, pointing to a bleak future. Everyone awaits the elections apprehensively, hoping for dynamism, for robust policies that will put India back on the growth trajectory. Unfortunately, for the time-being whatever hopes and aspirations that have cropped up for the Indian Economy are subject to the electoral outcome and a plethora of internal factors including inflation, interest rates and depressed domestic demand. Uncertainty about global economy also compounds the problem
Inflation, as usual, is the biggest obstacle that has enveloped the Indian Economy and has given sleepless nights to both, the RBI and the Indian households. And concomitant of inflation are negative externalities (reduced competitiveness of exports, sluggish demand) in the economic growth that lead to ratings concerns. Before the inception of the New Year, most of the newspapers carried headlines forecasting the optimistic health and recovery of the Indian Economy in the year 2014 but recently the Indian Economy is receiving warning signals from different sources, which could project a bad image and position of Indian Economy to the World. One of the warning signals they have received is from Moody?s who have warned that the low growth and high inflation may hurt India?s debt profile. India is currently rated BAA3, a notch above junk status.
If there is a credibility deficit for India?s debt profile in the world economy, India?s growth story would take a hit. The never-ending inflation is leading to an upward movement in interest rates leading to discouragement in the Investment activity making projects unattractive and creating severe implications in the job market which, in turn, affects the aggregate demand in the Indian Economy by the Indian households. Exports growth has also lost steam, hitting a six month low of 3.49% in December. And to add to the woe, the IIP (Index of Industrial Production) of the Indian Economy is falling. According to the Press Release of Central Statistics Office (CSO) on 10 Jan 2014, there has been 2.1 percent decline in the Industrial growth and consumer goods have shown a negative growth of 8.7 percent This signifies that aggregate demand is decreasing because of Inflation and the investment climate is still not soothing and amicable in India despite the implementation of National Manufacturing Policy introduced by India three years back. Projects worth more than a $100 billion remain stuck in various legislative and bureaucratic hurdles, despite the inception of CCI (Cabinet Committee on Investments). ?The mounting fiscal deficit is another activity in the economy, which has drawn a lot of attention. The Current Account Deficit poses another problem. The recent trend for the latter has been encouraging with a steep fall in imports (15.5% for the month of December) coupled with a nominal growth in exports. However, measures that curb imports are short term in nature and only encourage smuggling. These must make way for concrete long-term solutions to reduce CAD.
The Government can control fiscal deficit by investing in activities that are productive in nature and boosts investment and economic activity in the country rather than investing in food security and subsidy, which are mere, transfers and will increase the government?s medium term expenditure commitments. Restructuring the loan accounts will also end the payment logjam and make sure that priority payments are dispensed without delay. Efficiency in agriculture is long overdue and will make it more appealing as a business prospect. People have to be pulled out of farms and R&D investment in agriculture needs to rise. The country?s manufacturing base continues to totter even after two decades of liberalization. That needs to be taken care of by clearing projects swiftly. A healthy environment conducive to investment in industry will act like a tonic. Liberalization in the regulation policy is required for doing business in India. This will create jobs which will boost aggregate demand in the economy. An encouraging, coherent and federal policy on FDI is required. Foreign capital inflows need to be accepted with gratitude rather than scoffed at. The immediate future of the Indian economy appears as hazy as the early morning fog. The government needs to find the light at the end of this long tunnel really soon.
Ravi Kant?holds Economics Honors degree from Ramjas College, University of Delhi. He likes researching in the areas of Economics, Strategy, Politics, English Literature and Social Issues. Besides that he loves watching Parallel and offbeat Cinemas of Bollywood. He aspires to be a well-known and an eminent Consultant in the area of Economics and Strategy. Presently he is doing his MBA from Institute of Management Technology (IMT), Hyderabad.
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