Econintersect: Everything that could go wrong seems to be going wrong for India. First there was a major goof up in reporting the Ministry of Statistics and Programme Implementation revised the Index of Industrial Production (IIP) sharply down for January from 6.8% to 1.14%, “because of wrong calculation of sugar production during the month.” The Indian Finance Minister Pranab Mukherjee found the episode baffling. According to him, from the Business Standard:
“I can understand if there is error in calculating 0.1% or 0.2%, but from 6.8% to 1.1%, it is totally baffling,” Mukherjee told reporters here, commenting on the sharp revision of the IIP growth rate for January from 6.8% to 1.1%.”
Duvvuri Subbarao, the Governor of Reserve Bank of India, in another statement, has sounded another alarm bell.
As reported in the Times of India:
Subbarao said fiscal deficit in 1991 was 7% and it is ruling at 5.9% in 2012. The current account deficit at 3.6% is higher than 1991 figure and short-term debt at 23.3% of GDP in 2012 is much more than 10.2% in 1991. “That is quite a disturbing picture. Nevertheless, I would still argue that in 1991, an implosion was imminent. In 2012, an implosion is not imminent,” he said.
The situation as he sees must be serious enough, because he compares to the 1991 Economic Crisis.
The 1991 Economic Crisis
During the 1980’s the gross fiscal deficit of the government (center and states) rose from 9.0 percent of GDP in 1980-81 to 10.4 percent in 1985-86 and to 12.7 percent in 1990-91. These deficits had to be met by borrowings. The Government debt rose from 35 percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91.
Foreign exchange reserves had dried up to the point that India could barely finance three weeks of essential imports. India had to mortgage its gold reserves to Bank of England to borrow foreign exchange and pay for imports.
Economic Policy Reforms
After the crisis under the political leadership of P. V. Narasimha Rao, who was then Prime Minister, Manmohan Singh, the present Prime Minister, who was then Finance Minister, carried out reforms which were obviously required.
Economics turns Full Circle For Manmohan Singh?
It is ironical that the same Manmohan Singh who is credited with the turnaround of India in 1990’s is seen as the person essentially responsible for the current problems due to weak, ineffectual leadership and coalition politics.
Foreign Investors have turned Skeptical
Ruchir Sharma, Morgan Stanley head of Emerging Markets, calls the Indian growth story a “hope” trick. He is critical of Indian political and business leadership, suggesting that Indian businesses should invest in India more than abroad.
Are BRICS falling apart brick by brick?
This is no pun. China has slowed down, Indian growth story is suspect and Brazil has done not so well. The fourth BRIC, Russia has not been doing well either – the Russian ETF (NYSE:RSX) is down more than 10% since early March and over 30% in the past year. The newest member of the new BRICS organization, South Africa, is not setting the world on fire either, with that country’s ETF (NYSE:EZA) down approximately 15% in the past year. And Europe continues to simmer, so is it back to US becoming the engine of growth?
Indian Economic Growth: The Indian Rope Trick?
One thing is certain, India has to pull its act together or, as a recent Econintersect article commented, Indian Economic Growth might be the Indian Rope Trick.
Sources:
- Jan IIP data revision totally baffling: Pranab – Business Standard
- 1991 India economic crisis – Wikipedia
- Rising fiscal deficit disturbing: Reserve Bank of India governor D Subbarao – The Times Of India
- The great Indian hope trick – Ruchir Sharma-Morgan Stanley in Times Of India
- The Indian Rope Trick – Econintersect
