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Narasimhan's review
Investment Sector: Emerging Markets Submitted by Narasimhan 
, Owner
at Krish Systems
3 months ago Tags: BRIC India lowest Populist Policies Bad Economics Add Tag |
India ranks lowest amongst BRIC countries
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India has lost out amongst its peers viz Brazil, Russia and China unable to handle consistent and steady GDP growth of 6-8% over the past decade. The inflation, according many it is a pass through of crude oil price increases, has posed a dilemma to the policy planners. Presently, inflation is being contained by monetary contraction measures that will trim and pull down the growth. The only justification seems to be slowing of US economy pushing Indian authorities to look at choking credit rather than correcting serious flaws in pricing and subsidies that are being doled out.During the month of June Indian exports grew by 12% in US dollar terms, at nearly half the rate it has registered earlier. It is relevant to that rupee sliding from Rs. 40 to RS. 43 in a brief period must increased dollar demand and withholding of dollar supplies by the exporters. Such a step in the interests of earning more and cancel ling of forward contracts and postponing deliveries under existing contracts have in no small measure contributed to this scenario.On the other hand the imports having been literally soaring. Non oil imports have grown by 27% and oil imports have posted a rise of more than 40%. The declining rupee and increasing crude prices have contributed to this. All these have summed up to a deficit of $ 10.8 Billion deficit in May double that of the previous year. This situation is scary as the country cannot finance beyond a third of the deficits through foreign direct investments. Domestic business environment was stimulated with tax cuts and loan waivers in March 08. But the 15% increase in fuel prices seems to have raked up the inflation. Reserve Bank has been quick to adopt tough monetary stance pushing up interest costs as though creaming of excessive demand is the only remedy. No Indian seems to have plans to tackle the lopsided wage increases the country has been witnessing. During the past decade and a half the employment in the information technology and business process outsourcing industries have been growing at a rate of more than 40%. To day they account of nearly 1% of the employment. The investing in infrastructure especially in roads and power has made possible to manufacturing sector especially the Auto industry to grow rapidly at a rate more than 20% in most segments. This growth was aided by the credit expansion by banking sector especially aggressive lending to the home sector underpinned growth in cement and steel sector. All these gains are sought to be wasted to day by hikes in interest rates. Currently the banks pay 3.5% lower compared to the inflation on the deposits. This contrasts with the positive return of 3% during the previous years when inflation was lower and interest rates were moderate. Savers are being penalized for the gross mismanagement in administered prices and unimaginative taxing of crude oil products. As and when the government starts implementing the pay commission report the wage structure in the economy will undergo a huge churning. The differentials will add to the number of persons who cannot decent living. In short span of three months short sighted pursuing of economic policies that appeal to large sections of persons has resulted in a situation that calls for bold measures to restructure policies and revisit subsidies. Other wise India will remain a poor cousin amongst the BRIC countries each which has shown the willingness to correct external instability in past decade and emerge successful.
Today Brazil, Russia and China have macro economic stability and good surplus in their current account while maintaining a good growth rate. India on the other had is slipping out caught in the spiral of administered prices and subsidies which are undoing hard work the Indians have done to put the country firmly in outsourced services market.
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