Last week the announcement of GDP figures of
the Indian economy sent shockwaves in the stock market. The market which was
already paralyzed with the rising fiscal deficit, current account deficit and the rupee’s fall
deteriorated further. The Finance Ministry
as always is blaming the global factors that is the Eurozone crisis for the
falling economy.But are the Global factors solely responsible for the downgrading
of Indian Economy.Let us find out. There are various austerity measures which
the Government Of India can introduce in order to bring the ailing economy back
on track rather than blaming the Euro Crisis.Let us discuss each of them:
1.High
current account deficit:Current account deficit means that
the imports of a country is more than its exports.India imports Crude oil and
Gold.The current account deficit in India is almost about 4% of the GDP and it
has been on a rising spree.In India Oil is decontrolled ,it means that whatever
profit or losses arises it goes directly to the Oil companies.Rising of the Oil
prices are the only means by which the Government can get more money and hence
the people have to co-operate with the government to a certain extent.
2.Decline
in the Investments:With the announcement of the
introduction of GAAR last month by the finance ministry the foreign investors
lost their faith and as result there was a huge drop in the foreign inflow of
funds,however later the government withdrew its decision.Now the solution to
this is that the Government instead of
introducing GAAR should encourage the
QFIs to invest more.QFIs are qualified foreign Institutional investors,they are
a resident of a country and is a member
of the Financial Action Task force(FATF) which inturn is a member of the global
body against money laundering.In addition to it they are registered under
SEBI(Securities And Exchange Board Of India) and can invest in all the
important segments of the Capital Market that is mutual funds,equities and
corporate debts.
3.Managing
Fiscal Deficit:The excess of government expenditure
over its revenues is termed as Fiscal Deficit.This year the fiscal deficit is
5.9% of the GDP.Acoccording to the Provisional estimates released by the
Controller General Of Acoounts the fiscal deficit for the year 2011-12 was 5.09
lakh crore against 5.21 lakh crore revised estimate presented in the Budget.A
deficit of 3% of GDP is seen as sustainable.The Government had enacted the FRBM
Act (Fiscal Responsibility And Budgetary Management) in the year 2003 mainly
with the objective to eliminate revenue deficit by the year 2008-2009 but over
the years the fiscal deficit has risen.Now the solution to the problem lies in
the fact to continuously monitor that wheather the various programmes and projects
which is introduced by the Government is implemented properly at the grassroot
levels.One such example is NREGA(National Rural And Employement Guarantee Act)
which was introduced by the government mainly with the objective of providing
100 days employement to those people of India who live below the poverty
line.Just a year after it was implemented there were complaints from various
states that most of the engineers eat the money and at the end the poor are
left with nothing.
4.Rupee
depreciation: The rupee depreciated to 56 a dollar
this year, helping only the IT companies to splurge their revenues. There has
been a 20% depreciation in rupee against dollar since early 2011.The solution
to the problem lies by issuing FCCBs(Foreign currency convertible Bonds).Clearing
of the FDI decision is also a constraint. The Government should immediately
open up fdi in the multibrand retail and the aviation sector as well.
5.High
Inflation:The inflation in India is rising at a rate of about
7.23%.The APMC Act(Agricultural Produce Marketing Act) was mainly passed with
the objective of regulating the prices of the production and vegetables,but the
main problem with APMC Act is that it prohibits city based retailers to buy the
produce directly from the farmers.The APMC Act should be immediately be removed
so that supply is not a constraint anymore.Another solution to the problem as
discussed earlier is the opening up of the fdi to the retail sector.
6.Impending
reforms:The GST(General Sales Tax ) should be introduced as
fast as possible. Manufacturing sector in India is one of
the highly taxed sectors in the world. A complex and high taxation structure
has the tendency to render products uncompetitive in the international market
or eats up large portions of the cost arbitrage available in manufacturing
set-ups in low cost economies such as India. For instance, the manufacturing
cost of most products in India is nearly half than in the west. But, the
incidence of multistage taxation i.e. customs duty on imports, central excise
duty on manufacture, central sales tax (CST) / value added tax (VAT) on sale of
goods, service tax on provision of services and levies such as entry tax,
octroi and cess by the State or local municipal corporations and related costs
such as loss of tax credit, compliance and litigation cost chip away this
advantage to the extent of almost 50 per cent.
7.Change
in Leadership:Last year the UPA Government has been
hit hard with plethora of scams with protests from all over the country.It has
been since many years that the UPA government has been ruling in the
country.There is a term called Nothing is permenant and the people of India
needs to implement that now.A change in the government is needed so that a
completely new set of measures,steps can be taken to improve the economy of our
country.
In conclusion it
can be said that India had achieved a growth rate of 8.5%,7.7%,6.9%,6.1% and
5.3% in the past five years.This figures suggests that even in the year 2008
when the world was hit by the HOUSING BUBBLE India’s growth rate never receded.Though
this year it has been very different firstly with the false coding of the sugar
production the IIP index in February fell down.In the first quarter of 2011-12
the GDP grew by about 8%,followed by
a fall to 6.7% and 6.1% in the
second and third quarter respectively.Well the solution to the problem only
lies to the fact that until and unless the Government gets the policies right
wheather it’s the spectrum allocation or the fdi it is really difficult to
achieve a moderate growth and even sustain it in the long run.
