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September 27, 2017

Essays for IBPS PO VII : Slowdown of Indian Economy and Improvement

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Slowdown of Indian Economy and Improvement

Main Points to Highlight : The Indian economy exemplified as a success story of the third world economies just a couple of years ago is at crossroads today limping at a pace slowest in almost a decade showing signs of drifting towards the pre 1991 era. Ironically, the man who steered us clear of the 1991 storm, and is at the helm of affairs now is helpless and at loggerheads owing to constant accusations of policy paralysis, corruption allegations and leadership crises weighing down his options. Some of the factors are: high and constantly increasing Current Account Deficit (CAD); sharp deceleration of industrial production; India's expansionary fiscal policy and global financial crisis. Some hoard of measures that can be implemented to bring everything under control. 

Indian economy is described as an economy which is tenth largest in the world by nominal GDP and third largest in terms of purchasing power parity. This economy was growing at a fast pace in recent past has been plagued by such a slowdown that our currency is on a free-fall and it is not able to ascertain its lower limit. 

Economy of a country depends on number of factors which are divided in three general categories like Primary, Secondary and Tertiary. Over independence-era, Indian economy till 1991 was based on a mixed economy which combines the features of capitalism and socialism resulting in interventionist policies and import substituting economy. This economy has always given much emphasis on agriculture which is called as backbone of the nation as the percentage of people dependent on it is approximately 60% of the total population. But the misery is that its contribution in total GDP of the nation is less than 10%. 

Looking on the various sectors that contribute to make the Indian economy like agriculture, trade, services etc. In context of Indian economy, the most important one is the trade aspect that consists of import, export and various business processes. Trade aspect alternately tells us about the industrial growth of a nation and its dependence on other nation. Recent slowdown of economy is attributed to the fact that import has exceeded the level of export that lead to heavy deficit of balance of trade.

The most important factor in the slowdown of Indian economy is the poor infrastructure, low growth in agriculture production and industrial activities. After the adoption of LPG principle in 1991 India has opened its economy for global prospects which mainly involves liberal and free market policies. This opening has brought various pros and cons with itself as earlier our economy is tightly regulated by government policies and principles.  

Our country is rich in number of metallic and non-metallic minerals which has given a strong base for the rapid industrialization. But there are few types of natural resources which are present in scarce amount like petroleum, natural gas, gold, silver etc. global scenarios is telling that the economic fight of future times is based on these aspects. To fulfill the gap created by this scarcity India has to buy a heavy amount of this resource from foreign players who are also in the arena of global power fight. 

To have a control on the issue of petroleum, it has to explore alternatives like LNG and other alternatives. Economic condition of a country is also decided by the physiographical, social and political condition existing in that nation. Looking from the perspective of India one can easily ascertain the upheaval condition existing due to its distorted relation with its neighbors, dangerous internal condition due to rampant corruption, narrow minded politics involving communal forces etc. 

Politicians involved in making the framework for Indian economy are not ready to understand the seriousness of the situation due to their vote bank politics still the various policies in this economy are formed on the influence of certain groups which have political ground. India as a nation with vast manpower, sufficient amount of natural resources, suitable natural location for global trade has good amount of potential which can make it a superpower. But to achieve the top slot, it has to look at various loopholes present in its planning section as well as implementation section. But if a nation has to exist and maintain itself in the front in the run of this economic competition, he has to keep his pace with global standards. There are certain other aspects that it can adopt to reduce its dependence on global economy as increasing its research and development share, establishing good relations with its neighbor so that it can reduce its heavy expenditure on defense sectors, planning economic- centric schemes which try to maximize the capital part along with social responsibility. Politicians have to understand the fact that time has come when they have to realize the importance of the moment and resolve their differences on economic issue and bring out a plan that can boost the factors responsible for growth of domestic industries. These policies must be freed from the local influences and have a global outlook. 

Of the numerous challenges India has been facing four distinct situations: fall of rupee against dollar and other currencies, widening current account deficit (CAD), soaring inflation, and dampened GDP growth. These factors are alone sufficient to show that we are far from where we were standing a couple of years ago. All these factors possess a cause-effect relationship. The worsening of one factor leads to the impairment of others. What exactly went wrong with the economic system of India to cause such a holistic downfall of the national economy? Surprisingly, the most recent and the most concerning situation at the moment is rupee tumble. It has very little to do with our faults or mismanagement or any shortcoming on the part of our central bank or government policies. The crisis literally started with the announcement by the U.S. Federal Reserve Bank that it would taper off its quantitative easing (QE) policy which pumps a huge amount of capital in developing economic markets and which can substantially alter the state of market. The implementation of this policy change is yet to see the light of the day. It has already caused a sense of panic in investors and industrialists. It is not for nothing said that when the U.S. sneezes, the world catches cold. Hence, the reasons for depreciating rupee are less statistical and more speculative. 

The next important aspect is the burgeoning CAD. It is currently pegged at 4.8% of GDP (about $90 Billions). The most obvious reason for this is increase in imports and decrease in exports in the recent years. India has seen a contract in the mining and quarrying sector and the growth in the manufacturing sector has been nominal. 

A soaring inflation, though, can be reasonably attributed to the government policies which are more voter-centric than citizen-centric. Policies like regulating oil and LPG gases and providing huge subsidies for them which had to be amended at some point of time (petrol has been deregulated recently) were like time-bombs waiting to explode. 

Still not ready to learn from its mistakes, the government has recently decided to shoulder yet another colossus subsidy in the form of National food security Bill. Though a policy like this is undeniably heartening the government categorically fails to answer from where the resources necessary for implementation of this apparent game-changing policy will come. These situations stem except the fall of rupee, stems from inside the system. The solution lies within the system only. 

Hence, the situation needs to be faced on a holistic basis, though handling them on different time axes would be more prudent. A very surprising fact about the Indian economy is that India transformed directly from an agrarian economy to a tertiary economy. At the time  of independence, most of the people of the nation were dependent on agriculture for their livelihood and most of the share of the GDP came from this sector only. But today, though 62% people are still dependent on agriculture, only a meager 18% share of the GDP comes from this sector, the majority is from the service sector. 

In this way, India could never realize the full potential of being an industrialist economy. Over-dependence on tertiary sector growth was certain to back-fire sooner than later. In the long run, India will need to strengthen its industrial sector, and it has no alternatives at all. Any other growth model would just not be sustainable as we have seen in the past. It is not just in India but in the entire world. Since this massive task will start bearing fruits over the next decade or so only, an immediate and short-duration policy is the need of the moment. 

India has to rebuild its forex reserve. There is nothing more effective than foreign investments, especially foreign direct investment (FDI). FDI is stable, effective and flows directly into the system rather than some private hands which is the case with FII. Disinvestment of PSUs, though on a limited basis, can be another stress buster at the moment. 

The latest government policies regarding FDI which underline its readiness to welcome foreign investors to bring in investments are very welcoming and should be supported by one and all without partisan differences. The next important idea is to cut down on unsustainable subsidies, which might prove untenable a few years down the line. The man responsible for bringing India back from crisis in 1992 is the Prime Minister himself. He should ensure that reforms are pushed again emphatically to ensure sustainable developments. The CAD has ballooned partly because court orders have closed Indian mines for iron ores and coal, reducing exports and necessitating imports of those products. The government should understand that non-essential imports, particularly those imports that have affected employment and livelihood. Gold imports have to be reduced substantially. 

The Governor-designate of the RBI, Urjit Patel has very wisely said that we have to shift our focus from consumption to supply. It is high time we understand that being a consumer doesn't count in the long run; it is being a producer that counts. This is the key to becoming an economic super-power. And if we are ever dreaming to be one, we better start acting like one. 
shared by Nisheeta Mirchandani
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