The current economic crisis threatens to destroy all that India has gained in the past 15 years of growth. Who is to blame?
When bad news comes in torrents, even driblets of good news can appear as manna from heaven. On the political front, after almost 12 successive electoral defeats, the survival of the Congress led UPA government has been ‘temporarily guaranteed’ by the Samajwadi Party and Manmohan Singh can still nurse hopes that the Nuclear Deal will be a proud moment in his otherwise tattered and ramshackle legacy. On the economic front, spin masters of the UPA government are looking at agriculture as the saviour. Latest reports indicate that farm output in 2007-08 will actually cross a record 230 million tonnes. This, many hope will lead to inflation coming down to reasonable levels by the time the next Lok Sabha elections come around.
That’s become the leitmotif of the Indian polity and economy at the moment. Fighting crisis after crisis has become the norm rather than the exception. There are already signs that the Reserve bank of India might go for yet another interest rate hike-yet another sign of an ad hoc and desperate way to tackle double digit inflation. Says economic advisor to FICCI Anjan Roy, “RBI might raise CRR and Repo rate but that is not the solution; it may aggravate the condition.”
And what is the condition of the Indian economy? Trade deficit will soar beyond $100 billion this year; the monthly average is already more than $10 billion. In 2008, Foreign Institutional Investors (FIIs) have withdrawn more than $8 billion from the Indian stock markets. The impact of this is evident in an interesting piece of statistics that has not been given the kind of attention it deserves by pundits and the media. For the first time in ages, the foreign exchange reserves of India actually declined by a precious few billion dollars. Of course, rising oil prices are to blame. In fact, oil at about $140 a barrel is, and will continue to play mayhem with government finances, making a mockery of lofty targets set for fiscal sobriety. The Finance Minister P. Chidambaram and his team of advisors can play around with numbers and project that fiscal deficit targets are being met. But the fact of the matter is they are not being met.
When bad news comes in torrents, even driblets of good news can appear as manna from heaven. On the political front, after almost 12 successive electoral defeats, the survival of the Congress led UPA government has been ‘temporarily guaranteed’ by the Samajwadi Party and Manmohan Singh can still nurse hopes that the Nuclear Deal will be a proud moment in his otherwise tattered and ramshackle legacy. On the economic front, spin masters of the UPA government are looking at agriculture as the saviour. Latest reports indicate that farm output in 2007-08 will actually cross a record 230 million tonnes. This, many hope will lead to inflation coming down to reasonable levels by the time the next Lok Sabha elections come around.
That’s become the leitmotif of the Indian polity and economy at the moment. Fighting crisis after crisis has become the norm rather than the exception. There are already signs that the Reserve bank of India might go for yet another interest rate hike-yet another sign of an ad hoc and desperate way to tackle double digit inflation. Says economic advisor to FICCI Anjan Roy, “RBI might raise CRR and Repo rate but that is not the solution; it may aggravate the condition.”
And what is the condition of the Indian economy? Trade deficit will soar beyond $100 billion this year; the monthly average is already more than $10 billion. In 2008, Foreign Institutional Investors (FIIs) have withdrawn more than $8 billion from the Indian stock markets. The impact of this is evident in an interesting piece of statistics that has not been given the kind of attention it deserves by pundits and the media. For the first time in ages, the foreign exchange reserves of India actually declined by a precious few billion dollars. Of course, rising oil prices are to blame. In fact, oil at about $140 a barrel is, and will continue to play mayhem with government finances, making a mockery of lofty targets set for fiscal sobriety. The Finance Minister P. Chidambaram and his team of advisors can play around with numbers and project that fiscal deficit targets are being met. But the fact of the matter is they are not being met.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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