Thursday, February 16, 2012

INDIAN ECONOMY: CHALLENGES AND EXPECTATIONS TOWARDS THE BRIGHT FUTURE



The Reserve Bank of India has recently released a small dose of liquidity by reducing Cash Reserve
Ratio (CRR) by 0.5% for the commercial banks. Government borrowings have swallowed significant resources from the banking sector in recent months. The Liquidity with banking sector is still a major issue. The US economy has already started picking up, employment rates have improved, order books have started moving and real estate has started looking up in US. The European crises are moving towards settling down with the help of Germany, England and US governments. The worst seems to be over. The year 2012 could be very fruitful for reinstatement of a high growth rate in India. The inflation figure have also indicated a positive picture. The only major worry is large fiscal deficit, which is expected to be around 3.5% by the fiscal year end.

It is important for Reserve Bank of India to come up to the expectations of industry, service sector and agriculture and to channelize larger resources at lower interest rate to productive uses and creation of new capacities. The December 2011 Index of Industrial Production has been at a tad low, at 1.8%, the lowest since July 2009. The real estate sector, housing, infrastructure sector including power, road, port and other major private sector and public sector projects require high capital and intensive investments. These are suffering severely in the absence of low rate adequate liquidity.

The power sector is also struggling due to lack of coal linkage and non disbursal of loans which were already sanctioned and where financial closure was already completed. The new sanctions in the power sector have reduced by more than 75%, which is critical impediment to growth. The Union Budget 2012 and the policy announcement contained therein including incentive for improving the sentiment providing realistic framework for growth are crucial at this stage.

The Union Finance Minister Mr. Pranab Mukherji is known for his special visionary approach and all of us look forward for a concrete positive movement at the initiative of the government. Budget this year need very special and aggressive approach to restore higher growth in economy and to reinstate robust confidence in masses.

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