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Not so long ago there was excited chatter in India about the possibility of the country overhauling China to become the world’s fastest growing large economy. But the Indian tortoise, far from gaining on the Chinese hare, is going backwards. Growth has not edged into double digits. Instead it has sagged back towards 6 per cent. In recent days, three investment banks have downgraded their view of India’s prospects. Morgan Stanley says the slowdown, the result of policy paralysis and a worsening external environment, could be deep and prolonged.
The symbol of India’s fall from grace is the rupee. It has sunk more than 17 per cent against the dollar this year to its lowest level on record. That ought at least to have helped exports. In fact they have shrunk, along with industrial output, which fell 3.5 per cent in March.
The weaker rupee has made oil and other imports more expensive. That has widened an already worrying current account deficit of about 4 per cent of gross domestic product. Nor will the weak rupee help inflation, which has never been brought properly under control and is now nudging 7 per cent again.
The Reserve Bank of India, the only part of economic administration that is semi-functioning, is in a classic dilemma.
Last month it cut rates by half a point in an attempt to kick-start the economy. But with inflation moving in the wrong direction, further such efforts are unlikely. It may even be obliged to put rates back up again.
Some of India’s difficulties are beyond the government’s control. It cannot help the European crisis nor the skittishness of foreign capital. The government of Manmohan Singh, however, must take much of the blame for current woes. There is a yawning “government deficit” to go along with the current account and budget deficits, the latter nearly 6 per cent of GDP. Tainted by successive corruption scandals and riven by regional and ideological factions, the ruling Congress-led coalition looks asleep at the wheel.
When the government has stirred, it has tended to do active harm. That was true of its March budget when it proposed retroactive taxes on foreign investors. It seemed to have Vodafone in its sights, a company in the process of investing about $18bn in the country. Investment rules are so changeable, approvals so opaque and so subject to corruption that even big Indian businesses say they are finding better investment opportunities abroad. If they can’t negotiate India’s investment maze what hope for foreigners?
This month provided a good example of the government’s lack of backbone. Facing mounting losses on subsidised petrol, it tried to raise prices 11 per cent. But within 24 hours, it suggested it might backtrack amid furious opposition from within its own fractious party.
The change of heart is reminiscent of last year’s reversal of long-awaited legislation to open up the retail sector. Then, as now, the move was characterised as hurting the poor. But enacted properly, such reforms should enable the government to target cash transfers more effectively and rein in the deficit by stopping subsidies to the middle class. Likewise, opening retail to big supermarkets might harm some small shopkeepers. But the benefit to the masses in terms of lowering prices would far outweigh any harm. To do some good, the government must be prepared to make some enemies.
All this is unsettling. If foreign investors take fright, India’s balance of payments situation could quickly deteriorate. Standard & Poor’s has warned it may downgrade the rating on India’s sovereign debt unless Delhi can get the fiscal deficit under control. India also needs faster growth to help bring hundreds of millions of people out of abject poverty.
Mr Singh, who used to be lauded as the architect of economic reforms, is now routinely derided. More than a prime minister, he is characterised as an errand boy for Sonia Gandhi, the Congress party leader. Indeed, the 79-year-old Mr Singh seems to have lost all ambition, as well as any grip over the administration he might once have had.
Yet Mr Singh has little to lose. He should lay everything on the line and give economic liberalisation one last push. He may lose the premiership in the attempt. But that would be infinitely better for the country – and for his legacy – than going out meekly as the head of a do-nothing government
http://www.ft.com/cms/s/0/c50fa738-a65d-11e1-aef2-00144feabdc0.html#axzz1wENwC5wX
The symbol of India’s fall from grace is the rupee. It has sunk more than 17 per cent against the dollar this year to its lowest level on record. That ought at least to have helped exports. In fact they have shrunk, along with industrial output, which fell 3.5 per cent in March.
The weaker rupee has made oil and other imports more expensive. That has widened an already worrying current account deficit of about 4 per cent of gross domestic product. Nor will the weak rupee help inflation, which has never been brought properly under control and is now nudging 7 per cent again.
The Reserve Bank of India, the only part of economic administration that is semi-functioning, is in a classic dilemma.
Last month it cut rates by half a point in an attempt to kick-start the economy. But with inflation moving in the wrong direction, further such efforts are unlikely. It may even be obliged to put rates back up again.
Some of India’s difficulties are beyond the government’s control. It cannot help the European crisis nor the skittishness of foreign capital. The government of Manmohan Singh, however, must take much of the blame for current woes. There is a yawning “government deficit” to go along with the current account and budget deficits, the latter nearly 6 per cent of GDP. Tainted by successive corruption scandals and riven by regional and ideological factions, the ruling Congress-led coalition looks asleep at the wheel.
When the government has stirred, it has tended to do active harm. That was true of its March budget when it proposed retroactive taxes on foreign investors. It seemed to have Vodafone in its sights, a company in the process of investing about $18bn in the country. Investment rules are so changeable, approvals so opaque and so subject to corruption that even big Indian businesses say they are finding better investment opportunities abroad. If they can’t negotiate India’s investment maze what hope for foreigners?
This month provided a good example of the government’s lack of backbone. Facing mounting losses on subsidised petrol, it tried to raise prices 11 per cent. But within 24 hours, it suggested it might backtrack amid furious opposition from within its own fractious party.
The change of heart is reminiscent of last year’s reversal of long-awaited legislation to open up the retail sector. Then, as now, the move was characterised as hurting the poor. But enacted properly, such reforms should enable the government to target cash transfers more effectively and rein in the deficit by stopping subsidies to the middle class. Likewise, opening retail to big supermarkets might harm some small shopkeepers. But the benefit to the masses in terms of lowering prices would far outweigh any harm. To do some good, the government must be prepared to make some enemies.
All this is unsettling. If foreign investors take fright, India’s balance of payments situation could quickly deteriorate. Standard & Poor’s has warned it may downgrade the rating on India’s sovereign debt unless Delhi can get the fiscal deficit under control. India also needs faster growth to help bring hundreds of millions of people out of abject poverty.
Mr Singh, who used to be lauded as the architect of economic reforms, is now routinely derided. More than a prime minister, he is characterised as an errand boy for Sonia Gandhi, the Congress party leader. Indeed, the 79-year-old Mr Singh seems to have lost all ambition, as well as any grip over the administration he might once have had.
Yet Mr Singh has little to lose. He should lay everything on the line and give economic liberalisation one last push. He may lose the premiership in the attempt. But that would be infinitely better for the country – and for his legacy – than going out meekly as the head of a do-nothing government
http://www.ft.com/cms/s/0/c50fa738-a65d-11e1-aef2-00144feabdc0.html#axzz1wENwC5wX
comment about economic growth of India from a country growing at a rate barely above its population growth rate 
