India Growth Slowdown: Policy inaction or Globalisation effect ?


Few analysts call it as a contagion effect of the euro zone crisis that is putting brakes on India’s growth prospects marred by rocky foreign inflows; while others put blame on steep hike in interest rates and soaring inflation for industrial slump in the economy.

Yet, there is a school of thought that attributes prevailing stalemate in the Indian economy to the lack of political will to set the reformist agenda and policy turnaround to kick start the inclusive growth mandate.

Further, as we all know, even RBI has hiked interest rates for 13 times in last 19 months; has led to steep slowdown in the industrial activity in the core sectors of the economy. This led to lower productivity and supply, consequently prices have gone up; and still there are no signs of curb in inflationary pressures.

European sovereign debt crisis is more of an excuse; an inner agenda is different for FIIs – they are pulling out money from India on key governance issues and regulatory hurdles in promoting benign business environment.

windowslivewriter91feb85807ad 13e06india economy growth71 Is India Growth story set to fizzle out?

Earlier people had set their eyes on RBI intervention to stabilize the currency fluctuation. But now, FM Pranab Mukherjee says that RBI intervention will not arrest the rupee slide by much, as the crux of the problem lies in the euro zone crisis which has led to flight of money from Europe to the US, leading to strengthening of the US dollar against other currencies.

Now, with these statements, even the surprise element has vanished from the foreign exchange market. The government has no money. The exchequer is already lagging on its way to garnering the targeted Rs.40,000 crores from disinvestments. So, what do they do? They ask rich PSUs to buy disinvestment portion from target companies. Laughable step! Exports stalling, imports exploding, and government has no money. What’s the way forward?

In the end, government has to loosen its grip on policy matters, if it wants to survive the remaining term of its political career. It needs to show some serious activity and come out of the corruption allegations it has been laid down with.

I presume that the government will open the gates of FDI in multi-brand retail to attract huge foreign investments. It will pull in tens of billion dollars overnight and the inflows will apply brakes to the falling rupee. The best part of this FDI in retail is that once the money is sucked in, it can not go out easily. So, these inflows bring immediate stability to the sinking ship of Indian economy. I am sure that’s the only option left for the govt to save our economy.

Of course, the opening up of multi-brand retail will call for resistance from the political allies and small kirana stores. But, with the passage of time, these voices will subside with the turn of the tide.

Another one is allowing foreign airlines to invest (rather bailout) in ailing Indian airline carriers. Though, this is not going to be a big amount, still this measure can attract billions of dollars. I don’t think 25% of equity of all Indian airlines put together will not be able to garner funds to the tune of more than a billion dollars.

However, the master stroke will be FDI in multi-brand retail – that will bring in retail expertise, infrastructure up-gradation and better logistical support for the exploding Indian retail sector led my burgeoning middle class population and growing consumer spending. Soon this is going to happen. If you feel government has any other options, tell me.

Somehow I feel that the government’s hands are not tied; they are cut off, it’s not that they won’t do anything. They can’t do anything other than opening up economy – after all, we’re as much of globalized economy as much we rely on our domestic strengths.

Believe it or not, our fuel (funding) for domestic growth comes from abroad in form of FII and FDI inflows. And as soon as they dry-up, we immediately feel the pinch, don’t we?

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