Current situation of indian economy free essay sample

The Indian rupee touched record low of 65. 52/dollar on Thursday and is down 16 percent so far this year despite efforts by policymakers to prop it up. The pass-through of the depreciation of the rupee exchange rate by about 11 percent in the four months of 2013-14 is incomplete and will put upward pressure as it continues to feed through to domestic prices, the RBI said in its annual report for the 2012-13 fiscal year ending last March. Asias third-largest economy has been pummelled by a selloff in emerging markets; with the rupee the worst performer in Asia this year after the U. S. Federal Reserve indicated it will begin winding down its economic stimulus. Headline wholesale price index inflation climbed to 5. 79 percent in July driven primarily by higher food prices and costlier imports as the rupees fall continued. Consumer price index inflation was 9. 64 percent in July, fuelled by high food prices. Risks on the inflation front are still significant, the RBI said. The rupees weakness could also increase subsidy payouts for fuel and fertiliser in 2013/14, the central bank said. However, the report said normal monsoon rains in India have taken a major risk off the horizon but said a close vigil was necessary after food prices showed an upsurge during April to July. If high food inflation persists into the second half of 2013-14, the risks of generalised inflation could become large, it said. Indias current account gap, which widened to a record high of 4.8 percent of GDP in the fiscal year to March 2013, is likely to ease in the current fiscal year but may continue to be much above the sustainable level, the report said. Global risks coupled with domestic structural impediments have dampened prospects of a recovery in 2013-14, and posed immediate challenges for compressing the current account deficit, it said. The central banks report added that utmost attention is needed to contain risks to financial stability arising from deteriorating asset quality of banks. The India of 2013 is not the India of 1991 There are ways of looking at India’s present economic woes marked by a rapid fall in the value of the rupee caused by persistent inflation of the past few years and the high current account deficit (CAD) of about $85 billion (4. 5 per cent of GDP) which needs to be funded through uncertain capital inflows year after year. The description of the present crisis by various economic and political analysts by itself tends to carry shades of ideological bias. Some well known economists on the far right prefer to describe the external sector situation as worse than the 1991 economic crisis India had faced. This narrative suggests the 1991 crisis was marked by a severe, external sector crunch and it acted as a trigger for the big bang reforms of the early 1990s. This section believes that the present crisis may be worse than that of 1991 but the government this time round is much more complacent, and less inclined to implement drastic reforms to revive growth. Then and now Of course, not everyone agrees with the narrative that the India of 2013 is worse than it was in 1991. Actually it is not. And more of the same kind of reforms is perhaps not the answer either. The world was very different in 1991 when western economies were still strong and looking outward, trying to deepen the process of economic globalisation. Today, major OECD economies are looking much more inward than before, trying to fix their own domestic economy and polity. Emerging economies like India, which managed to avoid until 2011 the negative impact of the global financial crisis, began to dramatically slowdown after 2011. Most of the BRICS economies have lost over four per cent off their peak GDP growth rates experienced until 2010. After 2010, excess global liquidity flowing from the West, the consequent high international oil and commodity prices fed seamlessly into India’s domestic mismanagement of the supply of key resources such as land, coal, iron ore and critical food items to create a potent cocktail of high inflation and low growth, and a bulging CAD. The key difference between 1991 and 2013 is the availability of global financial flows. In 1991, western finance capital had not significantly penetrated India. Now, a substantial part of western capital is tied to India and other emerging economies where OECD companies have developed a long-term stake. The broader logic of the global capital movement is that it will seamlessly move to every nook and corner of the world where unexploited factors of production exist and there is scope to homogenize the modes of production and consumption in a global template. This relentless process may indeed gather steam after the United States shows further signs of recovery. Indeed, some experienced watchers of the global economic scene have said that a recovery in the U. S. will eventually be beneficial for the emerging economies. This basic logic will sink into the financial markets in due course. At present, the prospect of the U. S. Federal Reserve withdrawing some of the liquidity it had poured into the global marketplace is causing emerging market currencies to sharply depreciate. In a sense, the depreciation of 15 to 20 per cent this year of the currencies in Brazil, South Africa, Turkey, Indonesia and India can be seen partially as a knee-jerk reaction to the smart recovery of the housing market in the U. S. and the consequent prospect of the Federal Reserve gradually unwinding its ongoing $40 billion a month support to mortgage bonds over the next year or so. But eventually, a fuller recovery in the U. S. will mean better economic health globally. Besides, some tapering of liquidity by the U. S. Federal Reserve is inevitable as such an unconventional monetary policy cannot last forever. The U. S. Federal Reserve balance sheet was roughly $890 billion in 2007. It has ballooned to a little over $3 trillion today simply by printing more dollars. Such massive liquidity injection by printing dollars in such a short period is probably unprecedented in American history. This is also unsustainable because sooner rather than later, such excess liquidity could send both inflation and interest rates shooting up in the U. S. — which again may not be good for the rest of the financially connected world. So what should India learn from the current situation? One, it needs to understand that cheap, finance capital flowing in from the West is a double-edged weapon. If not used judiciously to enhance productivity in the domestic economy, such finance will tend to become an external debt trap. This lesson is as important for the government as it is for the Indian capitalist class which has shown a tendency to use cheap finance and scarce resources such as spectrum, coal, land and iron ore to play stock market games in collusion with the political class. Of course, this is a systemic issue and needs to be addressed at the level of electoral funding reform. Indeed, this is more important than â€Å"fresh economic reforms† that blinkered economists advocate. India Inflation Rate The inflation rate in India was recorded at 5. 79 percent in July of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. India Inflation Rate averaged 7. 72 Percent from 1969 until 2013, reaching an all time high of 34. 68 Percent in September of 1974 and a record low of -11. 31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. In India, wholesale price index is divided into three groups: Primary Articles (20. 1 percent of total weight), Fuel and Power (14. 9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14. 3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10. 8 percent); Machinery and Machine Tools (8. 9 percent); Textiles (7. 3 percent) and Transport, Equipment and Parts (5. 2 percent). This page contains India Inflation Rate actual values, historical data, forecast, chart, statistics, economic calendar and news. 2013-09-01 INDIAN INFLATION RISES TO 5-MONTH HIGH IN JULY In July, Indias headline inflation rate, based on monthly WPI, rose to 5. 79 percent from 4.86 percent in June, mainly driven by higher food prices and more expensive imports due to a falling rupee. The of food rose by 3. 4 percent due to higher price of fruits and vegetable (11 percent) , rice (5 percent) and fish(5 percent). Energy prices were up 3. 0 percent due to higher price of furnace oil, aviation turbine fuel, petrol and bitumen (7 percent each) and high speed diesel (3 percent). Manufactured goods prices rose 0. 6 percent. Build up inflation rate in the financial year so far was 3. 12 percent compared to a build up rate of 2. 98 percent in the corresponding period of the previous year.