Saturday, October 15, 2011

INDIAN ECONOMY - MOUNTING CHALLENGES

The Indian economy is passing through a fairly rough patch, after a record performance of GDP growth for last several years. The major issues which are impacting the economy include:

Growth Slow Down

The Indian Economic Growth is apprehended for a slowdown thereby impacting GDP growth, employment, poverty alleviation. Growth in industrial production is one of the lowest in recent months as compared to last several years. The tax collection on the direct tax as well as indirect tax is much lower as compared to the budgeted estimated figure. It is important to appreciate that for last several years the tax collection always exceeded the estimate. Lower tax collection also indicates poorer health of the economy.

Heavy Government Borrowings

The Government of India plan to borrow an additional Rs. 50000 crore to Rs.80000 crore from the Indian financial market in addition to existing plan of about Rs. 500,000 crores as per its original planned budgeted borrowing.

Falling Savings

The savings and the public provident fund and other government saving schemes have gone down this year by about Rs. 30,000 crores.

Increase in Interest Rates

The interest rate has substantially gone up for last few years, thereby putting very heavy burden of finance cost for industry, services and trading sector. The increase in domestic interest rate by about 3.5% as well as increase in international borrowing cost, by about 200 basis point has impacted expansion, diversification and growth plan of various businesses. The non-performing assets with
the banking sector are also likely to increase substantially due to sudden increase in the financial burden.

Inflation

The government has not been able to tame the inflation, in spite of several fiscal policy interventions alibi corrections. Government has not addressed the issues of hoarding, speculative trading, supply improvements and regulatory and administrative interference in in genuine price increase. The prices of all basic amenities and necessities are increasing sharply including the cost of fuel, milk, pulses, cereals, vegetables, edible oil, transportation, and clothing and most seriously the prices of housing have gone up very substantially. The government needs to consider banning international investment in real estate sector in the interest of a common man. Even NRI need to be given a limited access to Indian real estate.

Exchange Rates

The recent rise of US Dollar all other major currencies vis-à-vis Indian rupee by more than 10% is not only unexpected but also shocking and clearly indicate the lack of necessary policy intervention by RBI and the Government of India. The Indian society is repeatedly asking a question as to where is our political leaderships. The Prime Minister Dr. Manmohan Singh, who was once upon a time considered as one of the best finance ministers and policy makers of the country, is practically missing from the government. No policy initiative or direction is being given by the current leadership. We urge upon the top leadership of the country including the leadership of the major political parties to have a brain storming session and give an appropriate direction to India and its economy. 

0 comments:

Post a comment