You are on page 1of 6

INDIA & ITS WAY FORWARD Post independence Indian economy can be divided into two phases, the

first 45 years after the independence and the last twenty years as a free market economy. At the time of Independence there were no foreign borrowings on India's balance sheet and so the Indian rupee was on a par with the American currency. But now the Indian rupee has depreciated by a little more than 66 times against the dollar in the past 66 years! The first major devaluation of Indian rupee started off with the first five year plan (FYP), inspired from Stalin's FYP in Russia, to finance welfare and development activities. The subsequent wars with China (1962) and Pakistan (1965, 1972) along with the five year plans took a toll on the Indian rupee. By 1991 India faced a serious balance of payment crisis with the country in the grip of high inflation, low growth and the foreign reserves were not even worth to meet three weeks of imports. This direful situation asked for a noble statesman in Narashima Roa and a non political economist in Manmohan Singh to liberalize the, then, conservative economy. They together opened the Indian market for direct foreign investment, an unpopular move then, to increase the FDI inflow and increase the foreign reserves. There were three major driving forces behind Indias economic growth and prosperity after economic reforms of 1991; Increased foreign direct investment, Indias expertise in information technology and increased domestic consumption because of a growing middle class population. This spurred the growth for the next two decade almost unchallenged by the Global finical crisis of 2007-08. India had an annual GDP growth rate of almost 9 % during the Global financial crisis next only to China. PRESENT CRISIS WITH INDIAN ECONOMY : Just three years after reaching 9% GDP growth and promising much more, the darling of investors after the 1991 economic reforms, India now finds itself in deep socio economic trouble. India, atleast from what is being projected in the media, is like Gotham city in making! The free falling rupee, decade low GDP growth, falling stock market, countless number of scams, raising inflation, alarming drop in FDI , downgraded investment rating, atrocities against women, fight for separate statehood, a parliament devoid of discussion, intrusion by our loving neighbours from all the four directions thanks to China, Pakistan and Sri Lanka, raising unemployment problems, number of freebies from government to pacify the voters before the impending general election, drought in Maharashtra, Himalayan tsunami in Uttrakand and the list of problems, India is up against, atleast in 2013 goes on! Are we really waiting for the batman to come save(redeem) us? From the signals sent out from the PM during his uninspiring Independence day speech at Red fort, or the birdbrain move from the finance ministry to levy taxes on flat TV imports or Gold imports to strength the rupee, or the great Modi's speech challenging PM for a debate on growth model, or the way Telangana issue is being handled by the center, or the complaint defense policy in defending our border, the entire political class is not looking it as a crisis leave aside the remedy(sounds good but it will be more appealing if u rephrase it)! Both the ruling and the opposition are very much interested in the next year's general election than the present economic bottleneck and impending dangers. Any country will require industries to generate employment and to fund the domestic market. But to set up new industry good infrastructure, cheap and healthy labour, local people with technical expertise, positive atmosphere for setting up business are very much necessary. India lacks behind in almost all these parameters and yet we are expecting foreign direct investment to start up new business, to fund the domestic market, and save the free falling rupee. The current economic problem is actually a cumulative policy failure right from the economic reforms of 1991. We have woken up to the

crisis only now. The shortcoming in infrastructure, the age old education system crying for reforms, deprecating government spending in health care(I beleive government spending as increased now a days), energy crisis, very poor economic climate to set up a new business, bureaucratic red tape, corruption and archaic land acquisition policy have contributed to the present crisis.

TO INCREASE FDI : Projects worth Rs. 80,000 crores have been shelved, with Posco, the South Korean giant, and steel-maker Arcelor-Mittal calling it quits in last two months alone. Foreign direct investment slid by about 21 per cent to $36.9 billion last fiscal year compared to $46.6 billion in 2011-12. The negative sentiment among foreign investors is clearly visible from their hesitancy to grab a share in the recently liberalized single brand retail segment(needs example not clear). This stagnation in FDI has contributed to high Current Account Deficit (CAD) and for the depreciating value of rupee. The Indian infrastructure along with the bureaucratic red tape and corruption are the three major factors that foreign investors are afraid off. Transporting goods (both the raw materials to the company and the finished product rolled out from the company to the market) takes week with poor road rail connectivity. Middle men add to this. India lags a central authoritative body that has all the powers to approve FDI in various sectors. Projects worth 1.75 lakhs crores are waiting for various government approvals in the last one year alone. This bureaucracy delay adds to the cost of the project apart from the logistic difficulties. Then to cut across this time line corruption and lobbying are seen as the only way out! To overcome this we should adopt a 3 point formula. a) Identifying projects of national importance(quote the criteria for national importance) and a committee of three with the highest authority, and ably assisted by experts, to clear/ file the governments response for these projects within 6 week of submission. b) Another committee to audit the working of the expert committee and to listen to the woes of the investors during the implementation phase of the project. c) All the above committee should be brought under the RTI act. FDI helps in greater capital inflow, improved technology, management expertise and access to foreign markets. (Good point but not consistent with the flow of this paragraph). LONG TERM SOLUTION : In the longer run bringing in FDI alone wont solve our problems. India has technical expertise and skilled managers and a growing middle class market of more than 300 million and this represents an attractive market. But there are many factors which hamper the growth and a few have been listed below. A) SUBSIDY - We are basically a subsidy-driven economy. For instance, 1) As much as 2 per cent of India's total GDP is spent on power subsidies for the relatively privileged, even as one-third of Indian households have no electricity connection at all. 2) At a time when the current account deficit (CAD) hovers over 5% of the GDP, the food security bill would cost the budget a whopping 1.5 lakh crore rupee annually! Many state governments, like TN and Kerala, have got more efficient and time tested policy to address the hunger and malnutrition. 3) The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the scheme which brought back UPA to power for the second time, costs almost 60 thousand crore rupee annually but it has been criticized heavily for the corruption in money distributed to workers, effectiveness and the quality of the work.

Employment can be generated through industries and agriculture but our government is more focused on addressing the unemployment and poverty through subside rather than implementing schemes to teach them some trade, helping them for a self sustained living without the help from the government. B) EDUCATION SECTOR : India has been climbing up the ladder of per capita income while slipping down the slope of social indicators. Human development in general and school education in particular are first and foremost allies of the poor. Education in India is learning to see one thing by going blind to another. Indian education, despite its huge limitations, often receives spectacular acclaim from abroad. Truth is, despite the great successes of the first boys, Indias education system is tremendously negligent in both coverage and quality. C) CASTE RESERVATION : Reservation based on caste in public sector and in educational institutes is one of the main reason for brain drain in our country . Rather the same reservation should be based on economic status. But no politician would be ready to take up this in the parliament fearing the vote banks. D) HEALTHCARE : An educated and healthy workforce brings economic growth and for that we need a fundamental change in the public health care structure and spending. Indian public expenditure on health has hovered around 1 per cent of the GDP for most of the last 20 years and it ranks 112th in the world, way behind countries like Colombia, Sri Lanka and Egypt. Private healthcare providers currently treat 78 per cent of outpatients and 60 per cent inpatients. 80 % of the healthcare infrastructure (including doctors) in India is present in cities which house 30 % of the population. With almost 90 % of healthcare spend in India coming out of the patients pocket; we need a system in place to develop a healthy society with more public spending from the government and a robust rural health care system. E) POLTICIAL INSTABILITY: With the Central government relying on regional political parties for support in a shaky coalition, economics takes a back seat. Add to it corrupt and inefficient bureaucracy, and the poor accountability of politicians. With the regional parties having a greater role at the center, the growth of North east India, where the number of MPs is very less, is never taken up! The North east people are never given an opportunity to be a part of Indian dream! Parties across the political spectrum have agreed to amend the Representation of the People Act to negate the impact of the Supreme Court verdict that ordered the immediate disqualification of MPs and MLAs on conviction in a criminal case. The biggest criminals write the rules that make their crime legal. F) OTHER FACTORS: A favorable climate to set up business with abundant venture capitalist, a reform to land acquisition policy for industry by linking the compensation money to the current market value of the land, improving the power sector to meet the growing demands of the industry and reducing the dependency on non renewable resources like coal, and Reorganization of agricultural sector by introduction of(introducing) new technology and reducing agriculture's dependence on monsoon will help us build a robust Indian economy. In a democratic country like India its absolutely rubbish to ask people to refrain from buying products in order to improve the economy. Its very funny to see a Harvard educated finance minister asking the public to reduce the consumption of Gold. Gold, through the ages, has been the investment metal. In a conservative society like ours, where investment is seen as real asset rather than the actual money, the craze for Gold cannot be reduced by an overnight statement by the government!

Its also stupid to ask people stop using foreign brand items for their daily use. We have been quite comfortable using these foreign products that, a day without them is incomplete. Habit of a society cannot be changed in a fortnight rather an immediate sanction of many stalled foreign policy by the government will bring in FDI worth 1.75 lakh crore in the next quarter there by reducing the CAD and improve the rupee value. Long term change is possible through provision of education and self-confidence; legislative and institutional change; better use of modern technology; decentralization of power and decision making; changes in social norms by eradicating the reservation based on caste and bringing it based on economic status, habit of thought and work culture; improving public sector accountability and transparency, improving the political accountability and reducing the number of criminals coming to power. Also, we need strong business setup in India that can challenge the international players in domestic market. A relatively small country like South Korea, as big as Uttar Pradesh, boast names such as Samsung, Hyundai, LG, POSCO in the market. Industries like these will will help to fuel the economy, create employment, bring in talents from across the globe and gives international exposure to the domestic market, improves the standard of living and increases the export. The economy should be developed such that it is self sufficient to meet all the demands, funds all the projects with little dependency on external fund, provide basic amenities and healthcare to all its citizens free of cost. We need a new system not a new government., We are blaming the government and the society yet we are the society and the government. So to make it a better place we must change ourself. The current lot of law makers are too old to accept any change! We must accept the fact that a system can be changed only over the course of time. Someone in general public today will be a law maker tomorrow. So to bring in a change we should first develop a society that is educated, self aware, independent to choose the right representative to assembly, has the ability to recall any public servant if he impedes the growth , and most importantly a participating society! As they say You reap what you sow , someone from this society when they become a lawmaker will be grounded and growth oriented! On a lighter note it would be great if politics is treated like a carrier just like an engineer or doctor, with some screening test for candidates representing a constituency ( No reservations in this test atleast) , and not like a party- family oriented business!!!