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Slowdown in economic growth, increase in export-import mismatch and falling rupee – What is the Government doing ?




There was a recent report on a slowdown in growth, and it really scared people. The statistic on growth in the quarter of Jan – March 2012 showed that this growth was slowing down, being only 5.3% for this quarter, leading to a growth rate of 6.5% for the overall year. And then there was the justification, with everything being blamed on overall global economy, primarily problems in the Euro zone countries such as Greece and Italy. So, the Government claims that the country should be happy that the Government is able to ensure that there is growth happening in the country, and the Government should be credited for it. Never mind that this was the same Government whose Prime Minister and ministers has been claiming all along that the growth rate would be sterling, with earlier figures of 8.5-9% being bandied around.
For some time now, the media, leading businessmen, and many others have all been screaming that the Government seems to have given up on any kind of reform, any kind of governance improvements, and in fact, seems to be wanting to go back to the time when license raaj was in place. So, reform measures such as pension bill, land acquisition norms, FDI in retail, FDI in airlines, etc, have all been seemingly given up. Even when the BJP is in support, there is an ally in the UPA who is against, and hence the Government does not want to proceed. And since the allies can smell blood, they are only too eager to ensure that the Congress remains bound.

What is happening with the economy ? In tough times, Governments try to ensure that they are able to get in more investments, but in India’s case, with lack of reforms, even local industrialists try to ensure that their investments are now more and more being made outside the country (in a reflection of their lack in faith in India’s economy). Further, at this tough worldwide economic time, foreign investors want laws that are consistent and do not seem arbitrary, and are prone to try and avoid risk. And you have the local Government wanting to ensure that even Supreme Court judgments are over-ruled by the Government, that the Government is wanting funds so much that it seems like it will do anything for it; in the quest for more tax revenue and plugging gaps, the Government was even ready to implement GAAR, such that the onus of proof lay on the tax payee rather on the tax department. In this particular case, the Government finally saw sense and decided to defer GAAR, but not reverse its course. So, we will face the same situation again in a few months.
Governments the world over are concerned with ensuring that exports are more than imports, and yet the Indian economy suffers from large mismatches, with imports being far more. A constant system of trying to ensure the increase of exports just does not seem to be visible, and the mismatch keeps on growing. The Indian economy imports large quantities of oil, as well as gold; a sensible Government would have tries its best to ensure that the amount of production of oil and gas kept on increasing through more oil exploration and yet it is scaring off all investors through a major fight with the main oil and gas producer (Reliance). Even with the case of the falling rupee, there does not seem to be any major action by the Government or the RBI to try and counteract the fall of the Rupee.
The bottom line is; most investors either in India or international see that the country is going through tough times and needs to implement a system of reforms and to make India more attractive to investment (and also reduce the level of corruption in the local system of governance), and they are increasingly showing a huge lack of confidence in the ability of the Government. The only thing that the Government seems to be doing is to keep on promising measures and improvements, but no major action on the ground is discernible.




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