It seemed like just a few years ago when India was actually looking economically upwards as the rest of the world was reeling in what could only be termed at the worst recession in more than 8 decades. As the dollar and pound slumped, the Indian Rupee gained a steady stronghold, and ministers were gleefully talking about more growth in the coming years.
Sadly, that phase has come to pass, and India is suddenly sliding back down the same ladder it climbed three years ago. The Indian Rupee is hitting new lows every day, prices of gold are soaring and prices of general commodities like onions are literally hitting the roof. And as countries like Britain watch its hopeful partner slump more, we attempt to find a few reasons as to what triggered this sudden decline.
Failure to tackle food inflation
It seems India’s decline was long expected. Many assert that the government should have foreseen this slump in the Indian economy earlier on, and should have done something to prevent it.
One of the many reasons for India’s economic slump is food inflation which has been a raging political problem for years on end. And it all started with the government’s inaction in the proper planning of the agricultural sector way back in 2009.
Instead of taking measures to sustain the produce until it reaches the markets (almost 40% of food products rot before they even reach the markets), the government proposed bringing in foreign supermarkets to tackle food inflation. Had they taken care of other things like setting up smooth roads, replacing bullock carts with modern transport facilities, setting up cold storage facilities to sustain produce, and enabling direct sales of produce from the farmer to the retailer while rejecting mediating agents, the prices would have been stabilized long back and food inflation would have been a thing of the past.
Heading back to the foreign supermarket scheme; the Indian government placed their dependence on supermarkets like Telco and Walmart to revolutionize the agricultural sector. That plan hit a roadblock when its coalition partner threatened to withdraw its support, thereby putting the government in an imminent danger of collapsing, if that were to happen. This forced the government to abandon its plan.
And by the time it had convinced its partners to accept these supermarkets, no one was willing to set up shop in India. The foreign supermarkets became wary of India’s instability. The clause that they had to procure more than 30% of their goods from local Indian suppliers also frightened off these potential markets.
The hesitation in investing in India is not limited to the agricultural sector alone. Foreign investors are stepping back when it comes to investing in the country, with many existing investors pondering about closing up shop and heading home. Even Indians are getting more and more apprehensive of investing in their own country. And the government’s non governance tactics can largely be blamed for the same.
Many believe that the Indian government should have come up with bonds for investors related to major areas like infrastructure development. Instead of encouraging investors to move in and out whenever they felt like it, the government should have encouraged long term investments with lucrative deals. And its move to penalize existing investors like Vodafone (which was slapped with a $2 billion tax bill) has potentially scared off other major investors, thereby increasing the current account deficit to 4.8pc.
The icing on the cake was apparently a long string of corruption scandals that hit the government in quick succession over the past few years. Scams like 2G and coal mining have literally made people lose their trust in the government’s ability to provide a stable environment for investment. Everyone just seems to want to wait until a more stable government is formed, and assurances are given about their hard earned money being in safe hands, before deciding to invest again.
No one knows how long it would take for the Indian government to break these vicious cycles and get back on track to form a more stable economy which would attract investors. Till then, the rupee will continue slumping, and probably move beyond 78 to the dollar. Inflation would probably increase to 13pc. And with that, India would see a new form of worship, as many Indians stop praying for the rains to come, and actually start praying for the prices to come down!