MACRO PROBLEMS IN INDIA

FIVE THINGS WRONG WITH INDIA'S ECONOMY

Alam Srinivas

BBC News, May 1, 2012

LOW GROWTH

After several official predictions that India would grow by 7-8% in 2011-12, the finance minister finally admitted in his Budget 2012 speech that the growth would be 6.9%.

The manufacturing sector is expected to grow just 3.9%

The actual figure may be lower at 6.5%, thanks to the statistical error in sugar production, which dragged down January's industrial production growth figure from 6.8% to 1.1%.

Although ratings agency Standard and Poor's estimate for 2012-13 is 5% or above, Indian economists feel they won't be surprised if the economy grows by just 4%.

"If things remain the way they are, in terms of policy decisions, investments and sentiments, I would go to the extent that the figure may be 3%," says a senior economist with a leading business association.

HIGH INFLATION

Wholesale price inflation, which is under 7%, could increase to 9-10% over the next few months.

Food inflation is still high at double-digit levels, and any hike in fuel (petrol and diesel) prices in the near future will spur inflation.

A combination of low growth and high inflation, or near-stagflation, would be India's worst economic nightmare come true.

LOOMING FISCAL AND TRADE DEFICITS

In 2011-12, the fiscal deficit zoomed from a projected 4.6% of GDP to 5.9%. Although Budget 2012 predicted it would come down to 5.1% in 2012-13, most economists remain sceptical.

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