Why is the Indian Economy in a Mess
The country is going through an economic crisis. The latest GDP growth rate has come down to 4.4%, the lowest in a decade. The highest GDP growth rate of 9.4% was achieved in 2008 and since then it has been steadily declining. The high expectations that were raised from the 8-9% growth rates had led to forecasts that India would be a super economic power by as early as 2020. Such expectations are now totally belied.
What has gone wrong with the economy / Why has the GDP growth rate collapsed? Why is China holding out and why are we the worst performers in the BRIC nations? Why has the GDP rate fallen from 5.4% to 4.4% a fall of nearly 20% between 2012-13 and 2013-14 Q2 comparable periods?
There are reasons beyond control of the government and there are reasons under its control. The recessionary trends in many of the advanced countries have adversely affected consumption of products from emerging and developing countries like India. This has negatively impacted exports from India and these have not grown as per expectations.This has resulted in shortfall in dollar earnings. This has also resulted in less capacity utilization export oriented industries resulting in less turn over and also some job losses.
India imports nearly 70 to 80% of its crude oil requirements and these keep going up by 2-3% annually. It forms nearly 35% of our total imports which are touching a figure of $465 billion annually. The oil prices are remaining relatively high at $100 to 110 per barrel levels. This results in heavy demand of dollars every week for payment to foreign suppliers.
Another area of concern is the increasing demand for gold in the country. India imports the highest amount of gold equal to around 860 tons per year. The import of this non productive asset costs the country around $60 billion yearly and is app. 10% of our total annual imports. It is a drain on our scarce foreign exchange earnings.
Yet another area which affects our export effort is the high incidence of corruption in almost all sectors. because of corruption in iron ore mining, the courts have banned export of iron from some productive mines. As a result in 2012-13 18.37 million tons was exported valued at Rs 10,372 crore versus earning Rs 33,911 crore from export of 61.47 million tons in 2011-12. This has resulted in a significant earning shortfall of Rs 13,539 crores.
One of the major reasons for the present state of economy is the widening fiscal deficit in every budget. It has resulted in expenditures being higher than revenues and leads to increased borrowings and prevalence of higher interest rates. this impacts the overall industrial growth rate. it also leads to the economy becoming structurally weak and lowering the country's ratings by foreign agencies which makes foreign borrowings costlier.
The repeated stalling of Parliamentary proceedings have meant that the government has not been able to introduce economy reform bills and also lacks the courage to do so. There is no coordination between the government and opposition parties to improve the economic climate which will encourage and attract foreign investors to invest in India.
All the above have impacted the Indian economy in a negative manner. The manufacturing in many sectors has contracted due to lower internal and external demand. The high cost of finances has resulted in product and services cost go up. The policy paralysis has meant that hardly any new investments especially in job creating manufacturing and services sectors is taking place. The static exports and increasing imports has widened the current account deficit exerting pressure on the dollar. This has made it costlier and rupee value has gone from 55 to 65 to the dollar. This will make many products costlier and contribute to higher inflation.
All in all the country is headed for a spell of poor economic environment in which the common man is going to find making ends meet difficult. The silver lining is the good monsoon and possible lowering of vegetables and food grains prices hopefully.
It is perhaps right time to hold fresh elections to explore the possibility of new leaders emerging and giving a new orientation to the economy.The present leaders have brought the economy to present state.
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