Indian Economy – The Decline

India is the eleventh largest economy in the world - the economy with the potential of being the largest in the world, by 2050. India’s poverty line has dipped to 29.8% and the literacy rate has peaked at 74.4%. India has an important role in emerging markets and developing nations. It boosts entrepreneurship and innovation. It is one of the biggest pioneers in the IT industry. With youth power bordering on 500 million in the age group of 18-25, India plays a very important role in BRICS (Brazil-Russia-India-China-South Africa). Comprising of all the elements and conditions that exist in a super economy, India’s growth engine still seems like it’s running out of fuel.

In 2008, the Prime Minister, Dr. Manmohan Singh declared that the country would grow at the rate of 8-9%. He predicted the extinction of “chronic poverty, ignorance and disease which has been the fate of millions of our countrymen for centuries.” But contrary to Dr. Singh’s predictions, the growth rate has descended to 5.5%, soaring inflation peaked at 10% and the rupee tumbled unexpectedly, going below 65 per dollar. With the alarming food inflation rate and slack in industrial growth to 2.7%; from June to August, the FII (Foreign Institutional Investors) unloaded $4 billion from the Indian market. There have been rumours abound (denied by government) that India might eventually need an IMF (International Monetary Fund) loan. Last year, a Hong Kong based a political and economic risk consultancy firm rated India’s bureaucracy as the worst in Asia. The Chief Executive Officer of Vodafone even went as far as to state that the bureaucracy was “clearly damaging” the nation.  

The new hope of the Indian economy, in my belief, is Raghuram Govinda Rajan, the twenty third Governor of The Reserve Bank of India and the former Chief Executive Economist of the International Monetary Fund from 2003 to 2007. Huge expectations rest on this man’s shoulders to support the Indian economy and also for the filtration of policies to gain back the confidence of foreign investors. India must go down the ‘stress test’ as Federal Reserve puts it, to help out the sinking PSUs and government banks. It examined the projected income, expenses, credit and capital market loses of 19 banks and provided them with necessary funds. Such measures must be taken for the private institutions as well and also other government bodies.

Looking at the base level of everything even remotely related to the Indian economic scenario, the government must strive to control the inflation rather than the currency rate at the moment as it would not affect the government’s solvency directly.