Awakened from a deep slumber- is it enough to hold the ship up in bad weather? – Abhimanyu Naruka

At the dawn of the 20th century India moved briskly towards a free market economy and increased financial liberalisation. With these initiations things have improved in our country, especially sectors related to infrastructure, medical, education and services. Now the question here is, are these actions good enough to stand with world top economies, considering the fact that globalisation has increased the interdependence among all the major economies. The global economy is presently going through some rough phase post the American recession and the on going Euro zone crisis has had its effect on our economy, especially on our exports. This in turn is reducing the income of our nation and putting a counter effect on our Balance of trade. In simple words our nation’s income is reducing, but on the other hand side we just cant let the expenditure fall on important sectors in our country, thus presently our country is facing the problem of Fiscal deficit. Since august it seems the finance ministry team has woken up from deep sleep because we have seen a barrage of economic reforms in last three months, the most debated one FDI. Obviously these reforms seems to provide a fresh lease to our economy and as far as the FDI decision is concerned it is the responsibility of  the administration to look after the interests of the retailers specially in the rural and small town sections. But as the saying goes we need to work on these reforms and get the interest of the Investors going on our country otherwise we are going to leg behind China and Brazil.

In past decade or so our country has seen massive urbanisation, though standard of living in urban areas has improved, on the same side there is little difference in the life of rural population. Rural issues are dying day by day, we still have infrastructure scarcity in these areas and a lot of agricultural issues are still unresolved. Government needs to take some dire actions with regard to this problem. One another trend which seem to have emerged in past decade or so is our rate of saving is going down, Urban India is playing a major role in this context, we seem to be splurging our money on the things which we can avoid. Some how the traditional habit of saving is getting outdated.  At the time when our government is taking serious austerity measures we also need to understand the importance of situation.

The meltdown in real estate, manufacture, infrastructure and agriculture, has resulted in slowdown of GDP growth rate. In addition to this rupee has also fallen against the USD by about 20% over the past year. Setbacks or reversals in India’s path toward a more liberal economy could hurt its long-term growth prospects and, thus, its credit quality. How India’s government reacts to potentially slower growth and greater vulnerability to economic shocks may determine, in large part, whether the country can maintain its investment-grade rating, or not. Local business confidence in India has also deteriorated for various reasons, including perceptions of “policy paralysis “within the central government. India was able to maintain public and private investment in infrastructure in recent years, sustaining high GDP growth of around 8%-9% during the three years leading up to the recent global slowdown (in 2008). However, a perceived slowdown in government decision-making, failure to implement announced reforms, and growing bottlenecks in key sectors (including lack of reforms to archaic land acquisition laws that hinder investment) has undermined business confidence. And infrastructure problems, combined with growing shortfalls in the production of energy products, have dampened investment prospects.

In addition, recent announcements by the government on taxation matters, such as the retrospective implementation of taxation on the offshore transaction of assets in India, have raised concerns among foreign portfolio and direct investors. Such incidents have raised the perception of risk among both foreign and domestic investors and could reduce India’s growth prospects in the coming years.

Despite its recent problems, the Indian economy remains in much better shape to muddle through the current period of heightened global uncertainty than it was earlier, especially in the early 1990s, when it suffered a balance-of-payments crisis. The risk to external liquidity is much lower, thanks to more than $250 billion in foreign exchange reserves and a floating exchange rate that gives scope for adjusting to external shocks. India’s financial markets are also deeper and more sophisticated than before.

One comment

  1. Good One Mr. Naruka

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