Indian Economy

The State of Affairs

Department of Business Administration RPIIT Technical Campus

Near Madhuban, Karnal.

CONTENTS

A NEWS ITEM IN A REPUTED DAILY

India Inc presses panic button on sagging

rupee, economy: With rupee ending at an all-time low of 63.13 a dollar, chief executive officers (CEOs) of top Indian companies are redrawing their currency risk strategies as a new normal for the rupee is fast emerging.
Some of the top companies such as Reliance

Industries, Birlas, Essar, Adani group, and the Tatas have huge exposure in foreign currency and any change in the rupees value increases their costs of operations in a big way.
I am disappointed, not surprised, with the way the

ACTIONS BY RBI
RBI has already acted aggressively, tightening

liquidity and raising interest rates, banning companies and individuals from spending money abroad in an attempt to stem the ongoing rupee weakening.
RBIs surprise tightening has been stark, but similar

to that in early-1998, soon after the Asian crisis. This time, however, none of these measures is helping the rupee stop its slide against the dollar.

GLOBAL vs. INDIAN ECONOMY

The global economic situation continues to be

difficult. Economic situation in both US and Euro area remains uncertain. U.S. gross domestic product shrank 0.1% in the fourth quarter of 2012 the worst performance since 2009.
There have been visible signs of slowdown in Indias

economy as well. The flagging industrial growth and exports have become serious concerns. Nonetheless, the slew of reform measures rolled out in September last year provided some support to the dwindling investor confidence. The investment activity however continues to be sluggish.

INDIAN ECONOMY
The economy of India is the tenth-largest in the

world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. On a per-capita-income basis, India ranked 141st by nominal GDP and 130th by GDP (PPP) in 2012, according to the IMF.
India is the 19th-largest exporter and the 10th-

largest importer in the world. The economy slowed to around 5.0% for the 201213 fiscal year compared with 6.2% in the previous fiscal.

DWINDLING INDIAN RUPEE

On August 28, 2013 rupee hit an all time low of

68.80 against US dollar. In order to control the fall in rupee, the government introduced capital controls on outward investment by both corporates and individuals. India's GDP grew by 9.3% in 201011; thus, the growth rate has nearly halved in just three years.
GDP growth rose marginally to 4.8% during the

quarter through March 2013, from about 4.7% in the previous quarter which is one of the worst performance in last one decade.

 India suffered a very high fiscal deficit of US$ 88

billion (4.8% of GDP) in the year 2012-13. The Indian Government aimed to cut fiscal deficit to US$ 70 billion or 3.7% of GDP by 2013-14, which now seems to be distant dream.

Indian Rupee/ $ Exchange Rates

Rupee/ Dollar Exchange Rate
70

60

50

40 68 63

30

20 31.37 10 4.79 1948 - 66 7.57 1967 8.39 12 17.9

39

1 1947

1975

1985

1992

1993

2007

Aug. 2013

Sept. 2013

INDIA A GLORIOUS PAST

India's share of world income collapsed from 22.6% in

1700, almost equal to entire Europe's share of 23.3% at that time, to as low as 3.8% in 1952. Indeed, at the beginning of the 20th century, "the brightest jewel in the British Crown" was the poorest country in the world in terms of per capita income.
British rule in India promoted commercialization of

agriculture with a focus on trade, resulting in decreased production of food crops, mass poverty and ruining the farmers, and led to numerous famines.
The economic policies of the British Raj caused a

severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping employment.

Worsening Current Account Deficit

4 Major Culprits
Heavy Reliance on Imports: Since independence India

has relied heavily on imports while restraining our own industrial growth.
High Subsidy Bill: Rather than reducing the subsidy bill,

the govt. has been launching various populist schemes e.g. MNREGA and now Food Security Act without assessing the feasibility.
Low industrial Growth: Due to corrupt practices and

wrong government policies, the industrial growth is going down. The industrial confidence is totally shaken.
Heavy Crude and Gold Imports: India rely heavily on

imports of Crude Oil and Gold.

WHAT NEXT..
The situation would worsen further in the short and

medium run because of wrong economic policies being implemented with political motives in the election year.
India would need to focus on increasing

manufacturing and exports. There is no other alternative to increasing exports to tackle the problem.
At the same time, India need to reduce its reliance

on imports by improving domestic capabilities.