Okay! first thing first 'India Declining' is a phrase I have used less to reflect my views on current state of Indian economy and more for its poetic touch to the title. However, the title of the post does summarize the Indian growth story of past two decades to a great extent. We liberalized in 1991 and left behind the 'Hindu Rate of Growth' to post miraculous growth rates that averaged 7.4% from 2000 to 2012 including the golden years of 2006, 2007 and 2008 when we posted a above 9% growth rate. With population growth rate of 1.9% or less and inflation hovering around the RBI comfort zone of 5%, it meant that we were growing in real terms and benefits of growth were felt in the buoyant economy. We did weather off the initial phase of 2007 financial crisis pretty well with help of govt. stimulus and RBI's monetary expansion but, then things took a U-turn.
When everyone was expecting the world economy to normalize the world leaders all of a sudden were reminded of moral economics and balanced budget. So, a consensus to foster fiscal discipline was generated which had been ironically ignored in the boom years and the market fearing a premature withdrawal of stimulus went back to panic mode. The European Crisis that now seems never ending too started making its presence felt and the recession was back. This time with bigger threats and a lot more at stake. Weathering off of the 1st phase of crisis had already burdened govt. finances (fiscal deficit reaching 6.6% f GDP in 2009) and the continued recession challenged the fire power of fiscal policy to stimulate the economy. This exposed the structural weaknesses in Indian economy and it was time for an anti-climax in the 'India Shining story'.
Since 2010 India's growth indicators have been worsening and woes increasing. Corruption, Stalled reforms, persistent inflation, high oil prices and to icing on the cake the falling Rupee have all hurt India's case simultaneously. India's GDP growth rate has been persistently falling for past 8 quarters and it fell to 5.3% in Jan-March 2012 quarter. Current account deficit for the year 2011-12 was 4.2% higher than the crisis year of 1991. Fiscal deficit was 5.1% of GDP in 2011-12 and is expected to be 5.5% in 2012-13 as per budget estimates. Rupee has already hit an all time low of 56.42 per US$ before showing signs of recovery. Investor confidence is low and interest rates high. Inflation as per WPI is hovering around 7% and CPI is around 10%. Thus, economic health of the nation is threatened. Adding to the woes are rampant corruption, ever increasing scandals, separatist elements, maoist violence. Add all these and we are ready to script a crisis.
The question that now arises is if India is really declining. Yes India's economic indicators are worse and financial crisis can't be used as an excuse but, it definitely is one of the cause. We still have handled the situation better than most developing economies. However the ongoing economic situation in India is reminder of the fact that we can't sit back believing we are destined to success with our demographic dividend and other fancy stuff. We need reforms and we need them quick. They are the one's which will reengineer the environment for growth and boost up investor confidence. Changing finance ministers can create share market hype for a day or two but, what India needs is structural changes. Temporary Fixes to attract FDI, FII and boost investment may bring back growth rate to an extent but, there is no denying the fact that we are in a structural mess (ill distributed subsidy, low growth rate for largest employer i.e. agriculture, growth without infrastructure and so on). Although, this is not the end of India Shining but, we definitely have hit a roadblock and we need to work hard in the right direction to re script what can be one great democratic growth story for a nation that once Churchill discarded as a nation destined to be lost in political squabbles.
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