Indian economy: a messy situation

December 22nd, 2011

At the beginning of the financial year the mandarins who run the Indian economy were being lauded for steering the country out of the global mess with remarkable ease and very little damage. Those were the days when a growth rate of 9-10% was considered as being the most natural growth rate for India. The country started the year with a dream of becoming the Pied Piper for global growth. But now, with extremely dismal macro-economic numbers coming, the ground situation seems to be very different. Dreams seldom become reality — as always.
The high rates of inflation, the corresponding fall in the value of the Rupee, the dismal GDP growth figures and industrial production numbers just released…the list can go on and on -– a sorry state of affairs.

Everything in this economic climate may be uncertain -– but one thing remains certain – the economic slowdown has arrived and this one is going to be far worse than the one we witnessed a few years back. The slump looks relatively broad based, covering a range of industry and service sectors.

The bad news does not end here, the dismal show of the internal economy is coupled with bad news outside. Right from one end of the globe to the other, economies wait with baited breadth as the never ending saga of bad news from the rich nations continues. The extent of damage to be inflicted on India by this is still not known but it is sure there will be damage.

And to top it all, we have a government which is turning out to be one of the worst non- performers — be it from taking policy initiatives to stem the downslide or combating corruption. This is fast turning out to be the icing on the cake. And like all cakes, even here the icing first has to melt. The government has to be forced into action and only then will the other parameters be brought under control. If the government actually thinks that the economic engine will start rolling again without any policy intervention, it is most unlikely.

Managing an economy is like riding a motorcycle, when it is at a great speed, balancing is easy but the real challenge in balancing is faced when the motorbike slows down. A deft rider can balance a slow bike and speed up again. An inexperienced one can only stop if the bike slows.

We can only hope the economy is not in the hands of an inexperienced rider.

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India becomes richer, Indians poorer

December 12th, 2011

According to a new report by the Organisation for Economic Cooperation and Development (OECD) inequality in earnings has doubled in India over the past two decades, making it one of the worst performers among emerging economies which include Argentina, Brazil, China, South Africa and Russia. According to the report, the top 10% of wage-earners make 12 times more than the bottom 10%, compared to six times 20 years ago — a sign that inequality of income is increasing by the year.

Unfortunately, this has happened during a period which is touted as the golden period of economic reforms in India. During this period, the country has seen unprecedented growth rates which have created an aura of INDIA GROWING. There is no doubt that India is a growing nation and on most of the macroeconomic (GDP-based) indicators, the country has done better than its peers. However this report raises serious doubt whether the large part of India (which still remains very poor) has benefitted from this growth period or not. The findings of the report clearly indicate that the growth in India has been very deep but not wide. The inclusive factor in the growth has been totally missing. Infact if one is to go by the report numbers, the growth in India has been exclusive, leaving a large part of the population untouched. These are surely not good signs for the future of the country.

Even in terms of absolute numbers, India has the highest number of poor in the world. Around 42% of its 1.21 billion people live on less than $1.25 a day.

As far as comparison with other emerging economies is concerned the report finds that Brazil, Indonesia and Argentina, on some indicators have recorded significant progress in reducing inequality over the past 20 years. By contrast, China, India, the Russian Federation and South Africa have all become less equal over time.

The situation is really grave and is a matter of great concern even more when we have a government which continuously claims as having introduced the most amount of welfare measures in the form of MNREGA and such like. It is time that the government came to grips with the situation and started taking corrective policy measures aimed at a ensuring a more egalitarian growth. As far as the aid programmes are concerned, the less said the better, but nonetheless it is known that they are beset with corruption, bad administration and leakages.

 

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