INDIA’S DOMESTIC PROBLEMS

INDIA GROWTH OBSTACLES INTERNALLY CREATED: INDIA FOREX

The Economic Times, May 19, 2012

Abhishek Goenka, founder CEO of India Forex Advisors, shares his views on the current state of the Indian economy and possible solutions.

After the 1991 economic crisis, India emerged as one of the fastest growing economies in the world. It recorded the highest growth rate in mid-2000s. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labor force and considerable foreign investments.

The process of LPG (liberalization, privatization and globalization) moved the country towards the path of growth, making it an attractive destination for investors around the globe. After the 2008 recession, the world economy was badly hit, leading to the global economy slowdown.

Our growth also slipped to 6.8 percent in 2008-09, but recovered again to 7.4 percent in 2009-10. The fiscal deficit was seen rising from 5.9 percent to 6.5 percent in the same duration. In 2003, Goldman Sachs predicted that India's GDP would overtake France's and Italy's by 2020 and Germany's, Russia's, the UK's by 2025, making it the third largest economy of the world after the US and China.

Can the same be said in 2012? It's quite difficult, but not impossible. The current account had always recorded a deficit. Growing oil import bills were the main reason behind the large current account deficit.

By 2011, India's public debt stood at 62.43 percent of GDP -- the highest among emerging economies. In 2011-12, our foreign trade increased by 30.6 percent to USD 792.3 billion, which consists of 38.33 percent of exports and almost 61.67 percent of imports. As of June 2011, exports and imports both grew with monthly exports reaching $25.9 billion for the month of May 2011 and monthly imports reaching $40.9 billion for the same month. It's clear from the above description that the entire problem that we talk about trade deficit, fiscal deficit, and sticky inflation was created over a period of time, the consequence of which has to be paid today in terms of slowing economic growth.

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