Beware, threat is looming large

Afif Ahsen

India's economy is considered to be among world's fifteen largest economies. Following liberalization and economic reforms policy in 1991, development in India took on wings and India emerged as an economic super power in the world. Prior to reforms, especially Indian industry and business was reeling under government control. In the beginning, reforms were severely opposed, but the protest petered down to large extent after beneficial results of these reforms were visible. But there is still a large section, which has not been benefited with these reforms and is not happy with the reforms.

India's current account balance of payment has been negative since independence. Under the pressure of the balance of payment crisis, in the wake of economic reforms of 90s, Indian exports witnessed an increasing trend. Country's export during 2002-03 was 80.3 %, whereas it was only 66.2% in 1990-91. It, however, came down to 61.4 % only following the great recession in world trade due to global economic crisis. India's constant and fast increasing oil import bill is considered to be an important factor behind the widening current account deficit, which increased to 118.7 billion $ or 9.7% of GDP in 2008-09. India imported crude oil worth 82.1 billion $ during January to October 2010.

India's exports and imports registered a decline of 29.2% and 39.2% respectively during June 2009 due to the global recession towards the end of 2000. This sharp decline was due to the fact that US and EU countries were the most affected by the global financial markets, whose share in Indian exports amounted to more than 60%. But fortunately there were considerable decline in imports in comparison to the exports and due to this India's fiscal deficit was reduced to 25,250 crores of rupees. The decline in oil prices also played an important role in this. In view of worldwide recession, FII started to invest in India with the objective of exploring better sources of income and the resultant decline in exports was, to a large extent was compensated by FDI.

But, after US announcement of increasing the loan accepting limits, FII has started withdrawing its money from India and investing it in US, which has resulted in constant increase in price of dollar vis-à-vis rupee and foreign exchange reserve is constantly shrinking.

According to an RBI report, foreign exchange reserve was 15,43,811 crore rupees in week ending 11^th November 2011, which is 20,642 crore rupees less than previous week. Today, the rupee is at the lowest level vis-à-vis dollar in the last 30 months. It appears that a phase of recession has set in, in the Indian economy, which is clearly reflected by the 1.9% decline in industrial production, which is quite high in comparison to two years' decline. This decline in Industrial Production Index for September is quite high to the strong 6.1% for September last year. During this financial year, the Industrial Production Index was stationary at 5% during April to September, where it was 8.2% during the same period of last year. Principal Economic Adviser, Kaushik Basu said that IPI for September are subject of grave concern and he says that global economic situation is responsible for this. Commenting on IPI for September, released on Friday, General Secretary, FICCI, Rajiv Kumar said that the outlook for industrial development has worsen during last few months. Businesses have been adversely influenced by the uncertainty of the economic environ and the negative development in capital goods and non-durable goods sectors reflects the mistrust of consumers. There have been decline of 6.8% in capital goods sector. Negative development has been registered in the readymade garments and textile sector during last few months.

This will adversely affect jobs in the country, as after agriculture, this is the biggest sector providing employment to people. It appears that the reason for this biggest decline in two years is due to increase in interest rates by RBI and unbridled inflation, which has resulted in decline in purchasing power of people. It is surprising that this has happened immediately after the festival season, during which it was expected of people to spend more.

Tax collection by the government has also gone down considerably due to lesser industrial production and increase in production cost. Petrol-prices are being increased daily. This is being done with a view to directly increase the government revenue, resulting in the increase in government's income. Meanwhile, Moody has down-graded the ratings of Indian banks. Reacting irresponsibly, the government has said that this rating is meaningless, as domestic loan provider is in a better position in comparison to its global colleagues. He is not worried. We are not influenced by this downgrading. In view of performance of global banks, we are quite strong and ratings have no meaning for us. Secretary, Financial Services, DK Mittal said that Moody has said that increase in the recession in domestic and foreign economies has been influencing the capitalization of Banks' assets standard and profits. Moody has said in the report that in view of quality, we fear the situation will worsen within next 12 to 18 months. Thus there will be increase in problems of banks during 2012 and 2013 financial years.

Senior BJP leader and former Finance Minister, Yashwant Sinha has expressed concern over country's economic situation. BJP has announced its decision to demand debate in both the Houses on deteriorating economic condition of the country. Expressing dis-satisfaction and concern over industrial development statistics released by the government, Yashwant Sinha said that there is hardly a thing in our economy which could make us happy. He said that condition of our economy is causing concern and the revenue deficit declared in the statistics released by the government, is far from the budget target. He said that if we compare industrial development of this period of last year, with that of April, then we will see that there has been decline of more than five per cent. The former Finance Minister said that on one side the condition of our economy is very grave, while on the other hand our Prime Minister is certifying good work to Heads of the States of other countries.

In an advisory tone, the former Finance Minister has said that the nation expects Prime Minister would call a press conference and explain the country about the economic health of the country. Our country is reeling under grave industrial crisis and our government is not cutting unnecessary and unessential expenditure. It is possible that no road has been constructed in your village, but in cities a single road is being constructed again and again during a year. Old footpaths are demolished and new ones are constructed. Old parks are re-developed, new memorials of departed leaders are constructed, not only departed, but statues of living leaders are installed and whenever the issue of spending on very essential heads comes up, then every government, whether it is state government of the central government, shakes off its responsibility and starts lamenting for the paucity of funds. Our government is lacking funds for its own needs, but it is trying to please other countries and promising them large-hearted aid.

Manmohan Singh has declared aid for Maldives and Pranab Mukherjee is talking of helping Europe and of pulling them out of crisis. In order to improve its financial condition, the government is also trying to get the additional cash reserves with public undertakings transferred to it, so that it can meet its expenses. If the government does not awake to the situation, it appears the country would head from bad to worse and then India will have to face the situation, that is prevailing in US and Europe.

In a couplet, Vasim Barelavi says first priority is to save the house, its decoration comes at a later stage. This fits to the present situation of the country.