Saturday, August 31, 2013

Indian Economic Worries and Possible solutions

The relentless fall of rupee, high inflation, loss of purchasing power of rupee, poor GDP growth, growing unemployment and high CAD are urgent economic concerns of India today, which many economists argue is faced by most of the developing countries today.

Several commissions and advisory committees have recommended reducing subsidies and correcting fiscal discipline. Kelkar committee recommended removal of subsidy on urea. Last year the government put a cap on the number of subsidised LPG cylinders that any house hold can purchase each year. But the National Food Security Act, 2013 goes against such recommendations. Though seen from a different perspective, if the common man gets subsidised food grain then inflation worries will go down.

Lowering import bill is foremost focus of the government in order to bring down the high CAD and stop the fast decline of FoRex. Some steps have been taken to discourage purchase of gold, but 80% of the import bill comprises of non elastic petroleum products. Some suggestions like purchasing more and more oil from Iran, which accepts payment in rupee are questionable as we do not know if Iran is ready to export oil to India. Also growing tension in Syria will make India to take a stance. If India opposes attack on Syria, she risks her relations with US. If India backs the USA, India might lose Iran’s helping hand. Also, the policy of staying on the fence wont work all the time as the growing stature of India in the region comes with certain responsibilities and roles too.

India imports coal worth $15 billion, despite the fact that she has the world’s third largest coal reserves. If steps are taken for speedy clearance of pending mining projects then this can be brought to zero and thereby addressing the high CAD problem significantly.

There is an urgent need to revive the manufacturing sector which contributes on 16% of the GDA. The Nation Manufacturing Policy seems promising but huge investments are needed in the manufacturing sector to improve the performance in short run. India needs to address the imbalance of trade with China too.

The RBI seems to be helpless at this point and its the turn of the government to take radical steps to bring about the needed changes.

The high demographic dividend can become an asset in such dark times if proper steps are taken and the same can become an unsolvable problem if this opportunity to revamp the Indian Economy is missed by our policy makers. 

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