If economic concerns trumped security issues in the Prime Minister’s Independence Day speech, this is because the past few weeks and months have not been kind to the macro economy or its planners. On August 9, the global rating agency, Moody’s, revised downwards its estimate of India’s growth to 5.5 per cent during the current year. That is a level many investment banks and financial institutions — Citi, Crisil, CLSA, among others, had estimated even earlier. Another agency, Fitch Ratings, which recently lowered India’s credit outlook to negative, has said there is a good chance it might be forced to downgrade the country’s sovereign rating in the next 12 to 24 months. Among official agencies, the Reserve Bank of India, in its July 31 policy statement, had trimmed its GDP forecast to 6.5 per cent from 7 per cent earlier. At the same time, the central bank had warned of many downside risks to growth and upside risks to inflation — factors that might well drag India’s economic growth even lower. In the last quarter of 2011-12, the GDP growth rate was a measly 5.3 per cent. The most recent data showed factory output declining sharply by 1.8 per cent in June, driven by a slump in manufacturing. The Index of Industrial Production declined by 0.1 per cent during the April-June quarter.
Despite growing much more slowly than before, some have claimed that India can still boast of being among the fastest growing economies in the world today. Though valid in a narrow sense, such statements miss the point that the Indian economy has been slipping badly and is weighed down by structural factors. In his speech, the Prime Minister underlined the need to grow faster in the interests of national security. India’s economic woes are exacerbated by a combination of domestic and global factors operating in tandem. The continuing fall in export volumes — in July they contracted by nearly 15 per cent from a year ago — and the firming of global oil prices are not good news in the context of a large current account deficit. The very large dependence on short-term capital flows to bridge the CAD points to danger ahead. The rating downgrades will increase risk aversion on the part of overseas investors in India and make external borrowing by the Indian corporate sector costly. Inflation for July has been lower but this good news must be tempered by the fact that the full impact of the insufficient monsoons has not yet been fully factored in. Dr. Singh’s assertion that the economy can grow even faster than the 6.5 per cent clocked last year will sound more credible if it is backed by a robust action plan.
Keywords: Indian economy, India GDP, economic growth, financial crisis
India has made tremendous progress in all fields, from a low base
post-independence, particularly in the last 25 years or so. Only 2-3
yrs ago the whole world was full of praise for the economic & social
achievements of the country, and the intellect & entrepreneurship of
the people. Recently turmoil in Western economies and domestic
governance issues - astronomical levels of national plunder (more to
be found?) and endemic corruption, in a poor and highly unequal
society - has paused progress.
A nation succeeds when a govt sets a direction and inspires the masses
to strive for those goals. This can only be sustained in a genuinely
democratic system with inclusive political institutions responsive to
citizens, supporting inclusive economic institutions – all delivering
good governance (accountability, transparency, rule of law) in a fair
& just society.
There is no reason why India cannot achieve high and sustained
prosperity, with a new approach, revised direction and new policies.
why does the government dependent on FDI. why does not he create the
domestic demand. why he does not see the infrastructure development.
In my opinion india should not open their gate to the foreigners but
it should create the domestic demand such as if the government cuts
the home loan rate by 3 to 4 percent, it would be in reach of people
to buy house hence it will boost the steel, cement industry and many
other secondary industries. we have to take ome strong measure to
create domestic demand and this will take the roots deep of the indian
economy and no outside storm affect our economy.
The editorial feeds to the negative sentiment, but fails to mention
even a single one of the proposed reforms as the path forward. If the
newspaper is sincere in its opinion that we need to arrest the
slippage, it should also promote the reforms needed for that.
The crux of this article is that india needs to wake up from its slumber of policy paralysis.Enough time has been wasted in coaxing the coalition to develop a consensus regarding major economic reforms(Like FDI in retail,insurance and pension sectors)Impetus needs to be given to the infrastructure sector by promoting PPP projects.efforts are needed to reverse the investor sentiments.Time for Mr.P Chidambaran to introduce some major economic reforms.
Point is that mere good wishes are not good enough. Concrete action and implementation of reforms are a must. We have wasted so many years without implementing very simple administrative, legal, financial and police administration reforms. Neither foreign capital nor technology was required to implement these reforms. Only administrative and political will would have done wonders. We cannot achieve success on any front without putting our own house in order. That is the first requisite of any growth strategy.
Our manufacturing base has become incompetent because of over
taxation, big size of the govt and over regulation and rise in
manufacturing cost and raw material cost of manufactured goods due to
inflation.What we need to do is reduce the govt spending reduce taxes
and make a stronger rupee and if possible shutdown the environmental
ministry which is restricting the establishment of new fa ctories and
creating a monopoly for particular companies by not allowing the new
companies.Our growth is not dependent on demand.Increased demand will
only create further trade deficit with the Chinese when we import more
goods due to increase demand.What we need is more productivity at
better efficiency than the Chinese and the rest of the world.
dear editor ,
your last line of the editorial, says it all!
instead of reeling out now and then,different nos,, by different persons at different
times, let us presume, 5.5. as predicted by moody"S as our GDP, and work out ways
and means, of how to improve it to 6.5.,, instead of blaming others or finding
excuses!where is the action plan...???the economist in him, P.M. should take the lead!
natarajang.k.
The editorial "Arrest the slippage" has put n a nutshell what ails Indian economy at the moment and what needs to be done to put an end to the downward slide in the growth rate. Requisite action plan and its proper implementation have become the imperative need of the hour. An eye-opener in the true sense!
Please Email the Editor