The Indian economy is under severe stress due to various factors. All key parameters like GDP growth rate, inflation rate, fiscal deficit, industrial productivity data and functioning of rupee has indicated the slowing down of the economy. And there seems to be no end to bad news.
Exports for the month of July declined by 14.8%, this is the sharpest contraction in three years on the back of falling demand from Europe and the US. This is also the third consecutive month of decline of the country's exports. This means that the country is most likely to miss this year's export target of USD $360 bn. Already, one third into the year and we have barely reached USD $100 bn.
Even the weaker Rupee was not an incentive to push more exports. With imports too declining by almost 8% during July, the slowdown in the domestic industry seems to be pronounced as companies seem to be importing less raw material and capital goods for production. But given the faster pace of decline in exports, trade deficit, which is already a worry, expanded from USD $14.8 bn in July 2011 to USD $15.5 bn this July. Although the weakness in developed markets is one of the reasons for slowing exports, it can't be the whole explanation. After a 20-25% depreciation of Rupee against the dollar, India's exports should have been at least able to hold last year's numbers, but it is instead shrinking dramatically. This is due to loss of business confidence back home.
The government should take bold steps to boost growth. Private sector Investment should be encouraged by restoring business confidence and clarity on policy road map. Keeping in mind the poor performance of the ruling government, it is unlikely to drive policy reform in the near future. Government will continue to face lot of challenges till 2014 general election. It may not take announce any populist scheme due to fiscal constraint but will also fail to build consensus with opposition for economic reform. Thus the economy will once again be held to ransom for few political gains.
