Why India’s macro economic situation has suddenly worsened ? Need for urgent measures to stem the rot

May 27, 2012

India may not yet be heading towards a balance of payment crisis, but the macro-economic situation of the country is worsening by the day calling for almost emergent steps to ensure that no further damage is done to the economy, a quick ASSOCHAM survey of leading economists and select CEOs has pointed out.

Out of the 58 economists and CEOs covered under the quick poll in the last one week, as many as 53 said India’s macro economic situation has suddenly worsened.

It was a combination of flip-flop on domestic policies and the global uncertainties arising mainly from the troubled Euro-zone which played a spoilsport for the Indian economy. Breaking out of scams, one after the other, resorting to taxation policies which are perceived to be unfriendly to the global investors, political compulsions of the government in not pursuing the economic reforms are the major factors which have led to a worrying state of economy, which was booming till two years ago, the survey respondents pointed out.

“The worst disaster is coming from a huge uncertainty on the rupee value and its free fall. Everybody out there in the business world is feeling shaky" said the survey.



A whole lot of sectors be it automobile, tourism, steel, oil, gems and jewellery, real estate are feeling the heat of rising dollar and weakening rupee. While cost of raw material imports has gone up significantly with rupee weakening by over 13 per cent in the last few months, inflation raising its ugly head is adding to the nervousness among the industry, bankers, and policy makers, the survey indicated.

The Consumer Price Index has also crossed the 10 per cent mark. This will hit the pricing power of the manufacturers who will have to absorb the increasing costs with their balance sheets taking a toll.

The economists surveyed in the ASSOCHAM poll suggested that there is a limit to which the RBI can intervene for taming the dollar and strengthening the rupee. The answer, majority of them, suggested must be found out by policy decisions by the Central Government. This must include reining fiscal deficit by cutting wasteful expenditure by slashing untargeted subsidies and reducing the current account deficit. The country’s CAD has already crossed four per cent of the Gross Domestic Product, which is not sustainable in the long run.



Exports, both merchandise and services, have to be pushed up along with confidence building measures to improve the financial inflows. The foreign institutional investors, who remained bullish on India till March 16 have certainly turned negative on the country.

The respondents also suggested faster clearance of the big projects in the steel, coal, cement, road, ports and shipping sectors. The private sector will chip and the global funding will return to India in case the government announces clearances to the projects worth hundreds of billions in these sectors, in the next three month, the CEOs pointed out.

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