AUG

Indian Economy: An In-depth Analysis

Since time immemorial, economically sound entities had had their influence in most of the decision making domain. When it comes to a nation state, it's also no exception to state that in the contemporary world, the state with a robust GDP(Gross Domestic Product) is a global power to reckon on. When we talk about economical influence over the world economy, then EMEs(Emerging Marketing Economy) are the new entrants contributing more than 40% of the world's GDP and also contributing about the same to the world's robust population figure of more than 7 billion, which is poised to cross the 9 billion mark by 2050! The ever increasing population compels the nation state to manage its finance in a more pragmatic way so as to facilitate better provision to the society inclusively, unrelentingly and sustainably. This article primarily deals with the Indian economy and the challenges remain therein.

India, a country with bountiful natural resources, had suffered unspeakable agony during the colonial regime, which not only drained the whole economy but also ensured it's increased agro-industrial production help develop the newly industrially revolutionised British economy. During India's struggle for independence a few nationalists even tried to highlight the rate of degradation at the hands of the colonial power.After the country got it liberated on the august day of fifteen in 1947, there was a formidable challenge present before the national statesmen to repair the beleaguered economy. To ensure a healthy growth, inclusive development and providing employment to many worthy persons the state embarked on adopting the socialistic approach of state sponsored development process, wherein many new heavy public enterprises were established to augment production capabilities, and ensure self sufficiency so as to dissuade imports of daily essentials. The strategy seemed to yield acceptable dividends in the first 3 decades post independence under the proactive leadership of Planning Commission, an extra-constitutional non-statutory body primarily established to oversee the development process.As the adage goes-"Adopt the change to sustain or perish ", there came a time in late Nineteen eighties when the country was forced into a crisis mode owing to the massively depleted forex reserves and inability to finance the burgeoning BOP(Balance Of Payment) deficit. The state was dragged to IMF(International Monetary Fund) for bail-out purpose. It was told to unveil bold economic reforms to rejuvenate the batter economy. In July 1991,the Keynesian economist Manmohan Singh,the then finance minister(An ex-RBI governor and bureaucrat also), launched the historical reform model known as GPL(Globalisation, Privatisation and Liberalisation),which sought to free the economy for foreign investment and abolished the archaic license regime. The GPL model ensured the country rise to higher growth path to 7-8% and also instilling more competition as a result of influx of high-end western technologies and more efficient management practices. India smoothly sailed in the higher growth band for two decades without much difficulty. The onset of GFC(Global Financial crisis) in 2008 caused by uncontrolled sub prime lending and the Sovereign debt crisis cause by unsustainable rise in dept-GDP ration of many euro zone nations stirred the whole world by its far reaching devastating consequences.Austerity seemed to gain traction leading to spending cuts in many social sectors and consequentially leading to slumped consumer demand owing to unbearable tax increases and ballooning unemployment growth. Though the twin crisis was more severe than the Great depression(1929-1933), Indian remained unscathed due to its robust fundamentals and timely diligent steps spearheaded by RBI governors Y.V. reddy and D. subbarao in protecting the fiance sector from external implications.Even India clocked two-digit growth figure in 2010-11 surprising many an economist through out the world.However,export sector was badly hit by the slump in demands from the U.S. and European nations and at the same time burgeoning import in crude oil and gold,a commodity in which India registered the top rank in overall demand the world over, led to unsustainable CAD(Current Account Deficit,

which is the excess of imports over exports). To provide relief to consumers from unaffordable high prices of crude oil, the nation endeavoured to release massive subsidies to OMCs(Oil Marketing Company like IOC,BPCL,HPCL) creating another financial crisis in ever increasing fiscal deficit. The twin deficit of current account deficit and fiscal deficit wreaked havoc causing the GDP growth figure to plummet in a down word spiral to hover in the band of 5-6% in FY 2012. Nevertheless,efficient fiscal consolidation process spearheaded by the new FM P. Chidambaram helped contain fiscal deficit to 4.8% of GDP. In May 2013 misquoted view of Federal Reserve chairman Ben Bernanke caused the INR to slump to a historic low over 60 per dollar, owing to sudden outflow of hotmoney and the sudden spurt in demand for U.S. dollar in the pretext of tapering of the quantitative easing policy led by Dr. Bernanke by mid-2014,if the current situation prevails then. Amid the ongoing crisis,it is sine qua non for the government to increase spending in Infrastructure and social sectors, rationalise FDI policies in various sectors and for the reserve bank to maintain a cautionary stance to manage the inflation-growth balance, which is often unmanageable, so as to lead India to the coveted growth band of 8% to further help the country in maintaining an inclusive,sustainable and healthy growth in coming times. The fundamentals are very strong like household savings and the demographic dividend. These need to be harnessed more to get a fruitful output. I hope, by 2030, India's GDP would be ranked in the top three and by per capita value ,it would have moved to the top spot!