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1. Inflation. Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 6-7%. A record 98% of Indian firms report operating close to full capacity (2)With economic growth of 9.2% per annum inflationary pressures are likely to increase, especially with supply side constraints such as infrastructure. The wholesale-price index (WPI), rose to an annualised 6.6% in Janu 2007 (1) 2. Poor educational standards. Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate 3. Poor Infrastructure. Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy. 4. Balance of Payments deterioration. Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months. This deterioration is a result of the overheating of the economy. Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports. Excluding workers remittances India’s current account deficit is approaching 5% of GDP
5. High levels of debt. Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future
6. Inequality has risen rather than decreased. It is hoped that economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s rural poor are yet to receive any tangible benefit from the India’s economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3)
7. Large Budget Deficit.
8. says finance ministry official Rupee volatility to remain till eurozone crisis resolved : D Subbarao. It also discourages foreign investment. It still allows little scope for increasing investment in public services like health and education. The effect of this is to discourage firms from expanding to over 100 people. Excluding subsidies it amounts to nearly 8% of GDP. Rigid labour Laws. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws. euro weigh on rupee NRIs home in on property as rupee crashes. Although it is fallen a little in the past year. As an example Firms employing more than 100 people cannot fire workers without government permission. euro slide Rupee weakness short-term. Falling rupee adds to slowing Indian economy and high inflation Story Comments (4) Read more on »TCS|Rupee|reserve bank of india|nifty|markets|Inflation|Ikea|HSBC|dollar|Currency EDITORS PICK Volatile shares. look for safe investment Rupee ends down on volatile shares. economy strong.India has one of the largest budget deficits in the developing world. RBI governor .
the chief executive of Lohia Auto Industries. a maker of electric bikes and scooters.21 against the dollar. Foreign investment in India. Analysts said the long-delayed proposal should help lure more foreign investment into the country. to 52. because he is worried about losing sales. While many currencies have recently depreciated against the dollar. since the end of August as investors have stepped back from the Indian economy and many traders have stepped up bets against the currency. the rupee has fallen more than most. controllers and plastic shot up 15 per cent in recent weeks.3 per cent against the dollar Friday after the decision to open the retail market. Partly in response to the concerns about growth.000 in New Delhi. But analysts say those gains would be muted because Western customers are not spending much. India has suffered the double misfortune of a slowing economy and high inflation. the head of Asian currency research at HSBC. Moreover. by sharply increasing the cost of oil and other commodities that India imports and has to pay for in dollars. and some analysts are predicting that it could fall further. The value of the rupee has fallen nearly 14 per cent. to Rs 31. or $480. Prime Minister Manmohan Singh's Cabinet voted on Thursday to allow foreign retailers to invest in stores in the country in spite of significant political opposition. especially given the stringent conditions that policymakers imposed on foreign investors. That would also worsen the government's large fiscal deficit. the rupee was trading at 45. Analysts say the depreciation of the rupee could exacerbate inflation. . it took in just $616 million. including software outsourcing companies like TCS and Infosys. Strategists at HSBC said in a note issued Thursday that the rupee could fall to 58 against the dollar.MUMBAI: For several months. many analysts and investors have grown more concerned about the growth prospects of the Indian economy. said his costs for components like motors. though not right away. During that time. a weaker rupee could help increase sales because it would make their products and services cheaper. wrote. In September. down from 8. higher exports would not fully offset the rising cost of imports because India has an annual trade deficit of more than $80 billion. when the country took in $6.79 to the dollar. For Indian exporters. has been falling sharply since June. it has another problem: a rapidly depreciating currency. It is the worst-performing Asian currency this year. The rupee was up just 0. because the country heavily subsidizes imported fuel and fertilizers.000." Paul Mackel.5 per cent last year. Some analysts now predict the country might grow 7. Less than three months ago.5 billion. which sell for Rs 25. which has been at or above 10 per cent for more than a year. He has not yet raised the price of his products. Now. which has a big need for foreign capital because it imports more than it exports. Ayush Lohia.2 per cent in the current fiscal year. "We do not yet see light at the end of the tunnel.
India has suffered the double misfortune of a slowing economy and high inflation. Less than three months ago. the rupee was trading at 45.21 against the dollar . to 52. Now.79 to the dollar. Some analysts now predict the country might grow 7. has been falling sharply since June. the Indian Rupee Tumbles By VIKAS BAJAJ Published: November 25. 2011) The value of the rupee has fallen nearly 14 percent. which has a big need for foreign capital because it imports more than it exports. India — For several months. Related India to Ease Retail Rules for Foreign Companies (November 25.2 percent in the current fiscal year. In September. since the end of August as investors have stepped back from the Indian economy and many traders have stepped up bets against the currency. it has another problem: a rapidly depreciating currency. the cabinet of Prime Minister Manmohan Singh voted on Thursday to allow foreign retailers to invest in stores in the .5 percent last year. 2011 RECOMMEND TWITTER LINKEDIN SIGN IN TO E-MAIL PRINT REPRINTS SHARE MUMBAI. down from 8. Partly in response to the concerns about growth. many analysts and investors have grown more concerned about the growth prospects of the Indian economy. During that time. it took in just $616 million.With Economy Slowing.5 billion. when the country took in $6. Foreign investment in India.
and some analysts are predicting that it could fall further.000 to 31. because he is worried about losing sales. Moreover. by sharply increasing the cost of oil and other commodities that India imports and has to pay for in dollars. .” Analysts say investors have bet heavily against the rupee in recent weeks after officials at the central bank.” he said.” Paul Mackel. That would also deepen the government’s already large fiscal deficit. “We are just waiting to see if it will come down from the current level so that there will be no reason to increase prices right now. Ayush Lohia. controllers and plastic had shot up 15 percent in recent weeks. It is the worst-performing Asian currency this year. because the country heavily subsidizes imported fuel and fertilizers. “I am just praying to God that the dollar can go down below 50 rupees. a maker of electric bikes and scooters. the Reserve Bank of India. Analysts say the depreciation of the rupee could worsen inflation. the chief executive of Lohia Auto Industries. which has been at or above 10 percent for more than a year. He has not yet raised the price of his products. But analysts say those gains would be muted because Western customers are not spending much. higher exports would not fully offset the rising cost of imports because India has an annual trade deficit of more than $80 billion. Analysts said the long-delayed proposal should help lure more foreign investment into the country. which sell for 25.000 rupees ($480 to $590) in New Delhi. For Indian exporters. wrote. a weaker rupee could help increase sales because it would make their products and services cheaper. suggested they would not intervene to limit the currency’s slide. said his costs for components like motors.3 percent against the dollar Friday after the decision to open the retail market. “We do not yet see light at the end of the tunnel.country in spite of significant political opposition. though not right away. especially given the stringent conditions that policy makers imposed on foreign investors. The rupee was up just 0. the head of Asian currency research at HSBC. While many currencies have recently depreciated against the dollar. including software outsourcing companies like TCS and Infosys. the rupee has fallen more than most. Strategists at HSBC said in a note issued Thursday that the rupee could fall to 58 against the dollar.
has since stepped in to try to check the sharp depreciation by selling dollars and buying rupees. said in an interview that the conditions imposed by the government on retailers that sell more than one brand were acceptable.I. the government’s decision to allow foreign retailers in the country should help. which would further drive down the value of the rupee.“The Indian rupee’s fall has been too much. analysts said. there are 53 such cities in the country.” Because it sells only one brand of products. a vice chairman of the Bharti Group.” Mr. warehouses and other facilities. said Rajeev Malik. Ikea. too soon. Sharma also said those retailers would have to invest a minimum of $100 million. said in an e-mail that it would “expect to present more information shortly about our intention to establish retail operations. told reporters in New Delhi on Friday that foreign retailers that sell multiple brands of clothing could set up stores only in cities with more than one million people. the Swedish furniture and home furnishings retailer that had previously said it wanted to set up stores here.B. the company would be able to own 100 percent of its Indian operation under India’s new rules. an economist at the investment firm CLSA. India’s commerce minister. Tesco and Ikea inject money into the Indian economy to set up new stores. Also. however. In the longer term. Retailers have welcomed the move. The bank has also said it will sell dollars to state-owned oil companies so that they will not have to buy them on the open market. Mr. if companies like Wal-Mart. But the flow will be measured and drawn out. . put 50 percent of their investment in back-end infrastructure and buy 30 percent of the goods they sold from small companies.’s own guidance has added to the depreciation pressure by giving a green light to speculators” to bet against the currency. Sharma said. and R. He said Bharti and Wal-Mart would soon start discussing how best to take advantage of the new rules. The central bank. Wal-Mart’s Indian partner. each of India’s 28 states would have to individually allow foreign-owned retail stores in their territory. Anand Sharma. Rajan Bharti Mittal. analysts say. “The step which we have taken is an investment in the present and the future of this country.