The Indian economy is in sore straits for the first time in recent memory on account of the difficulties experienced by France and Germany to resolve the debt crisis in the European Union and a slow progress in recovery in the U.S. and elsewhere. This difficulty has created uncertainty in world commodity markets and even in the petroleum sector. As the immediate outlook is discouraging, it has even been decided by members of the Organization of Petroleum Exporting Countries to obviate a rise in world crude prices by maintaining crude production even with the likelihood of Libya and Iran resuming oil exports tangibly.

Since the prospects for India's foreign trade will be adversely affected by these developments and forex outflows also have had a complicating effect on account of the slump in bourses and the dismal performance of the industrial sector, there has been a virtual raid on the rupee and its parity with the dollar has slumped to nearly 54.29 from around.45 in August this year or a drop of 20 per cent. This extent of decline in little over 3 months was not witnessed even in 2008-09 crisis when the rupee dipped by 27 per cent in a full year. But the previous low of 51.10 has been surpassed and is being speculated in forex market circles what will be the nature of measures adopted by the Union Finance Ministry and how the outflow of forex resources will be reversed with arrangements for bringing back retained forex earnings, securing new credit and the like.

RBI hesitation

The RBI has not undertaken interventionist operations intensively as in 2008-09. The hesitation of the monetary authorities to utilise effectively the available foreign currency assets of $ 270 billion is not understandable as only the speculative trading in currency futures has been curbed and new restrictions have been placed on booking and rebooking of contracts. There has, of course, been a recovery in the rupee to Rs.52.90 though there is still a feeling that a more dynamic approach should have been adopted.

The Union Finance Ministry also is in an awkward situation with fears of significant shortfall in tax receipts both direct and indirect and the necessity to overcome the loss in capital receipts on account of the inability of the exchequer to realise budgeted receipts under the disinvestment programme. Even if the Union Finance Ministry succeeds to overcome this problem with the adoption of novel measures, the expenditure on various counts, particularly subsidies, has risen inordinately even by the end of November and the fiscal deficit at the end of seven months works out to 74.4 per cent of the budgeted figure of Rs.4,12,817 crore against 42.6 per cent in the corresponding period in the previous year. The budgeted target of 4.6 per cent fiscal deficit will thus have to be exceeded significantly as the GDP growth also has been lowered to 7-7.3 per cent.

The borrowing programme through market loans has thus to be intensified and new loans having higher coupon rates will have to be issued. Alternatively there may be an attempt to raise foreign currency loans as the maturing foreign securities have also to be redeemed.

Huge grain surplus

The Planning Commission has observed that the exchequer is not in a position to adjust stimulus packages. The Union Finance Ministry also can take a hopeful view of the prospects for the coming months in 2012-13 as the bumper crops raised in 2010-11 will be resulting in an embarrassing surplus. It will be hard to prevent an uncomfortable rise in buffer stocks without a step-up in exports as well as a sizable increase in internal off take in domestic market.

The industrial sector has not, of course, acquitted itself creditably due to various adverse factors. There was a set back in October with a negative growth of 5.1 per cent. The cumulative growth in April-October was only 3.2 per cent against 11.3 per cent. For the whole year the growth may be only 5.3 per cent against 8 per cent. The services sector has been consistently performing well manner and the objective should be to utilise the still sound fundamentals of the economy for providing sinews for achieving a growth of 8.5 per cent or 9 per cent in 2012-13.

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