The Indian economy, which experienced runaway growth during the past three years, is likely to remain sluggish in 2012, compelling the federal and state governments to take further measures of austerity. New Delhi has already in place restrictions on public spending and on overseas travel of its ministers and members of Parliament.
Figures released recently showed that economic growth declined to 6.9% in the last quarter of 2011, from a peak of 10% growth recorded a year earlier.
Investors in Mumbai, the country’s financial capital, expressed concern last week that business confidence had slipped as a reaction to the indication that economic growth would be less than 6% during the coming financial year. Prime Minister Dr Manmohan Singh said in his New Year address, “it would be wrong to conclude that India is now unshakeably set on a process of rapid growth.”
Some companies have already taken measures to combat reduced output and profit margins. Soaring oil prices and operation costs have begun to affect a number of sectors, the worst among which is the country’s airline industry. As we wrote this, Kingfisher Airlines, which has had robust growth in recent years, was facing the prospect of its operation licence cancelled, since the Director General of Civil Aviation had determined that the Company was ‘not in a position to meet the maintenance costs of its ageing fleet.’
The state of the Indian economy is a reflection of the global crisis, with the American and European economies continuing to languish in debt, unemployment and other factors. As a result, Foreign Direct Investment has slowed down, affecting adversely many sectors of the economy.
But experts say that politics has been the main culprit for the current state of affairs, keeping the fragile Congress-led coalition government in a state of uncertainty and even fear of collapse. The Manmohan Singh government has been plagued by scandals, corruption at the highest levels of power and bureaucracy and pressures being built by social activist Anna Hazare and his so called, ‘Team Anna.’
It must be noted that no big reforms have taken place for the past few years and such is the dire state of India’s politics that it is hard to imagine any thing imminent. Things reached a nadir at the end of last year when the ruling coalition announced that it would allow foreign supermarkets into the country, only to do a U-turn in the face of protests from the opposition and its own coalition partners.
The government also failed to get the ‘Lok Pal Bill,’ with envisioned measures against corruption, through Rajya Sabha (the Upper House of Parliament).
However, it is not all gloom and doom. The consumer markets remain robust, with an ever increasing demand for fast moving consumer goods, housing, automobiles and a number of other high-market goods and services. Economists in Delhi argue that there are signs of improvement, with growth bottoming out, inflation showing signs of decline and the recent drop in the Rupee seen as a healthy movement. They expect the economy to record 7% growth in the coming fiscal year and pick up thereafter.
India’s rate of savings has also been on the rise, allowing for increasing domestic investment. Despite an expected decline in public spending, capital expenditure will remain above 30% of GDP. The Government’s 12th Five-Year-Plan, due this year, would place the country’s growth at 8.5%, well above the levels expected in many other countries.
