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Present Economic Crisis of India and its path of solution Abstract


Whole world are facing economic challenges once again since 2006. India has also been trapped in economic crisis after the economic crisis of U.S.A. and loan crisis in Europe. The indications of fall in industrial production, fall of share market, fall in valuation of Rupees with respect to dollar, fall in growth rate and GDP are indicating fast decreasing economy of India. Datas published in different magazines, news papers, News channels and R.B.I, are presenting the tragic scene of bad health of Indian economy. Decreasing growth rate and sleeping industrial growth of the country are increasing the possibility of serious depreciation.The issues can be converted into a tool to know the causes of drastic economic crisis of india,its impact and solutions. Keywords: RBI GDP IIP Introduction In the present time, the heavy fall in industrial growth rate created a big problem and reducing GDP has

to control the deficit finance and uncontrolled dearness.

According to industrial index production (IIP), biggest fall has recorded in industrial growth in preceding two years ie 2009-10,2010-11. Industrial production of India has decreased by 5.1% because of fall in manufacturing, mining and capital goods sectors. The fall of industrial production in some sectors have reached to 25%. IIP increased about 11.3% in October, 2010 whereas it fell 5.1% in October 2011. IIP has increased only 3.5% in this present year where as it increased 8.7% in last year. The contribution of manufacturing sector in IIP is about by 75%. It has fallen by 6% in October 2011 where as it increased by 12.3% in this sector in October, 2010. Fall in mining sector has also recorded in this present year. It has decreased about by 7.2% in 2011 where as it increased by 6.1% in last year.

There are two reasons of fall in above sectors. First is external and second is internal. External factors are concerned with the bad economic position of America and Europe. Internal factors are concerned with negative growth rate of IIP, high interest rate, wrong policy of government and several mistakes in taking decision for economic reforms. Repo rate and CRR have been increased 13 times in last one and half years to control the dearness. The increase in repo rate affected the industrial loan interest which is now above 9% from 7% and the cost of industries has increased and no new foreign investment is coming due to the change of policy by Reserve Bank of India. The government has given indication to take liberal decision very soon regarding interest rate and QFI(quality foreign investment) in new year 2012.According to Jagnatham Thunguntla, a research chief of SMC Global, it is a positive indication but it will take time to remove the condition. Materials and methods The present study is based on secondary data collected from the annual report of RBI.The other relevant datas and informations have been also collected from the several newspapers,television channels,magazines. Results & Discussions There are so many causes which are responsible of drastic economic crisis of india. Following points are proving towards the depreciation:The bad position of Share market We know that share market is the barometer of economy. We can predict about our bad economy or good economy through it. It is falling day by day and now it is about 15,000 sensex level. Foreign institutional investors are withdrawing their money from the share market and investing in other economically strong countries. The fall in rupee

Another great problem has started for Indian economy ie fall in valuation of rupees. Among the fall in growth rate and continue increasing in dearness, the impact of economic depreciation are also revealing also in India. Today, one dollar is equal to 53 rupees. The impact of fall in rupee is possibly on import and exports both. The fall in growth rate about 6.9% It may be the indication of bearish trend and worst position of economic growth that the economic growth rate has decreased 6.9%against 8.4% in last year. In addition to this ,the growth rate of gross domestic product (GDP) has been falling continuously in eight quarter below 8%. The growth rate of mining, construction and agriculture sectors is very low. So, these reveal the indication of serious deprecation in our Indian economy. Increasing dearness, increasing high interest rate, Euro loan crisis and bad economic condition of America have affected seriously our economy. Slow progress in every sector of economy is a matter of anxiousness. The important steps and initiatives of government have failed to bring the economy on right path. The government has also failed in many important sectors for economic reforms like as insurance, banking, and retail sectors. considerably. The negative impact of strict monetary policy Government himself is stating that negative impact of strict monetary policy has affected the investment and growth. On other side, finance minister Mr Pranav Mukherji is stating that the positive impact of strict monetary policy is arresting falling on growth of economy and investment. But after the study and analyzing the datas, we can say that the position of dearness is out of control. Besides to that the deficit finance and account current is the matter of thinking and anxiousness. The deficit of account current has reached to 2.5% of our GDP. The government has limited options at this time in these global economic circumstances for survival. Even the GDP has slowed down

Increasing imbalance in demand and supply It is to be said that balance of demand and supply of product is the backbone of any economy. But in the present, the imbalance is increasing in every sectors. Its impact is falling on employment and industrial development. The general manager of Hero Honda (Associated and Relation) says that I am seeing the indication of bearish trend till now. He also says that the company determined the goal of production of two wheelers about 1.7 million till 31 march, 2011.The goal was also determined in last year but the company had to reduce the goal due to decreasing of demand. The sale of four wheeler has also affected in2011.This is the reason that the possibility growth rate of four wheeler segment may be 1% in2011-2012 whereas sale of four wheeler increased exceed to 25% in2010-2012. The predictions of depreciation and increasing price of petrol and diesel have affected the sale of fourwheeler. The association of motor manufacturing (SIYAM) has reduced the growth rate two time in 2011.The fall of four wheeler sale has been starting from july2011 on the basis of year wise. In this way, we can say that the impact of demand and supply is falling directly on the production of companies; its negative impact also falls on the economic growth. The fall in capital market 35 companies of private sectors can not acquire capital of 33,000 crore through public issue due to bad position of financial market and global uncertainty Primary capital market was in silent mood in 2011due to depreciation in share market and global uncertainty. So they turned to foreign market for acquiring the capital. But so many companies have trapped in great debtness of foreign loan among the difficult economic position of India and strong American dollar. Indian companies acquired 1,80,000 crore in 2011 against 3lac crore in 2010 from equity market. Which is deplorable.

Reality and electricity sector have postponed their IPO because of deprecation. Disinvestment programme of Indian government is also postponed. ONGC, BHEL and SAIL could not bring their IPO. According to Capital Market Organization name SMC Global Securities Ltd ,Lodha Developers, Ambience real estate, Kumar developers, B.P.T.P, Raheza universal and Lavasa corporation and IND Bharat power infra could not bring their IPO and acquire their capital 32,000 crore . Beside of these, Reliance infratel, Glenmark Zenrix ,Gujrat petro corporation and One-97 communication Ltd could not bring their IPO in their duration of post one year. The Future Impact (1) The fall in industrial production is reducing in every quarter due to decreasing of demand. Its negative impact will be fall on employment .In this way, unemployment will increase. (2) Export will be affected with fall in production. The inflow of foreign exchange will be decreasing .In other side; the valuation of rupee will decrease against dollar. (3) Because this, inflation rate will be decrease .After the fall, Reserve Bank will have pressure to decrease the interest rate. (4) We are seeing its direct impact on share market. Sensexs are decreasing day by day. (5) Thus, the position of insolvent of companies, loan crisis, and disinflation may happen. Depreciation has prevailed in whole world The depreciation of 2008 damaged greatly the economy of developed and developing countries. But again the position might be much terrible in comparison with

2008.Perhaps, it might be like the depreciation of 1930.Whole world has awakened and ready to face against the serious depreciation. Economic crisis and important paths of facing the crisis It will take time to reform the index of economy. Fall of economy index is bearing anxiousness position for the whole country. So we will have to face the problem without taking any time. Today, the valuation of rupees has fallen deeply. It has fallen 18%from preceding 12 months. The recent datas of our economy are indicating the down trends. The index of industrial production has fallen very fast about 5.1%from zero level in the month of October; 2011.Industrial production has the share of 17% in gross domestic product. The fall in industrial production started first time after June 2009. The sensex of index of share market has gone down at 15000 level from 20000 levels. The fall of Indian market is biggest regarding monetary and share market in Asia. The rate of gross domestic product may be down 7% in the year 2011.Next year, it may be possible to go down from 6%.The fall in GDP is the meaning of shortage in revenue. It will affect the availability of fund for many projects like infrastructure, health and education. It will also affect the profitability of the companies. Because of this, the opportunity of employment and investment will be decrease. The less employment may create the social tension in our country. Interest rate has increased 13 times in preceding 18 months. Because of this, companies have postponed their projects. There is great danger both in public and private expenditure. There were so many reasons to contribute and create the economic crisis for India Today, external environment is not favorable .Export has decreased due to uncertainty of U.S.A and Europe. Foreign investments are used to pay the loan by the companies. Foreign investors are withdrawing their money from India and investing in other countries.

Besides of this, there is uncertainty in the matter of Sovran Det deafault. Because of this, our exports have fallen and widened the big gap in Account current .Import has been increasing day by day in comparison to export. Less foreign investment is coming and the valuation of rupee is falling day by day. We have selected six important measures to tackle the problems under the above introductions. If we adopt the following measures then we can return on the right track of development again.

First, Administrative Reforms We can not get high growth rate if the political instability and weak government prevails in the country. Investors have lost their courage on account of natural resources, shortage of coal, gas and complex environmental laws. Therefore, Administrative reformation is needed to get rid of this depreciation. Second, Growth Policies to increase the employment We will have to prepare new strategies to create the opportunity of employment. We will have to give importance to the new technique based on labour. Here, we cant forget the Gandhian economics to increase employment. We will have to reform such industries in which there is necessity of less labour or more labour such as textile, diamonds, ornaments, agriculture processing and export etc. We will have to establish production centre at that region where plenty labour is found. In such position, we can get the benefit regarding man power and we can modernize our economy. Third, To remove the shortage of infrastructure Our maximum infrastructure projects are not completing at the right time like as electricity, road, highway, railway, aviation and port and their cost has increased vey high. According to a report of infrastructure and project monitoring department of

ministry of statistics and planning commission, 34%central projects were not completed at the right time and the uncompleted projects have increased to 53%in 2011.Its cost has also increased 21% in comparison to 12%.If these projects are completed at right time then we can save a lot of fund and our economy increases fast. Forth, To motivate the agriculture sector Indian GDP is very sensitive to agriculture produce as it amounts to 28% of the total GDP. We can not get high growth rate with bad result of agriculture. The traditional agriculture methods adopted in agriculture till now are not beneficial economically and environmentally. Management of irrigation is not sufficient and other important facilities are not available .There are much shortage of such industries based on agriculture which can provide employment to people in large scale. So, we should also concentrate for the development of agriculture and adopt modernize methods. Fifth, Easily availability of Finance If the finance will be available easily to the general poor people, then they may fight in the case of unemployment. In the present time, there is no such type of financial facilities to the poor people. There are only 30,000 branches of all banks in 6 lacks villages and wards. Only 40% populations have bank account and only10% people have insurance policy. It is very essential for stability and growth that people should be available cheap banking and insurance facilities. Sixth, Deficiate Finance It is very essential to control the deficit finance. Finance minister said that the deficit finance may not be exceeding from 4.6% but now it is stable on 5.4%. The depreciation may make the position worst of less-revenue and less- investment. The expenditure of food subsidy has increased very much now a day. In this condition, financial reforms are very essential for the economic stability.

IMF chairman Christen Laggard has awakened the world for increasing economic crisis in Europe. According to him, if all countries do not settle their differences very soon then great depreciation like 1930 may prevail in whole world. A vision on latest economic condition:1. International credit standard organization (FICS) has declared to decrease the credit rate of six international banks of Britain, France, Germany, and Switzerland. 2. Standard & poors has also decrease the credit of big ten banks of Spain. 3. IMF has stated that the prediction of growth rate of global economy may be 4% which is less then 5% of the year 2010. 4. It has also stated in a report of bank of America Meril Lynch that global economy will enter in 2012 with week view due to determination of wrong policies in Euro region. Lastly, we can conclude that we should be attentive and be preparing to face the economic crisis. For this, we will have to make the strategies to control the present economic crisis. But in recent time, government is thinking and making the policy to win over the present election of different states. They are adopting the politics of vote when it may take enough time to reform the indexes of economy. So, we should be aware before creation the future danger position of economy. References 1. Shukla M.B. Indian economy,Taxmann Allied Services Pvt. Ltd.,New Delhi,2011 2. Sundaram K.P.M. Datt Gaurav ,Mahajan Ashwani, Indian Economy , S. Chand Publisher, New Delhi,2011 3. Annual report of R.B.I. 4. Hindustan hindi daily newspaper of 2011 5. Prabhat khabar hindi daily newspaper 2011

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