The Indian economy has been on a downward slide over the last three years. GDP growth which had rebounded after the global financial crisis has fallen off a cliff. From nearly 10% growth we are down to a growth rate of below 5%. A lot of criticism has been directed at the UPA government for the same. The government has for its part, always maintained that global factors have been to blame. They have repeatedly sought to deflect criticism by pointing out the fact that all emerging markets are in the same boat. This argument has not convinced anyone in India. Now it appears that even the International Monetary Fund (IMF) has taken the side of the UPA's critics.
As per an article in live mint, the IMF has, in its annual world economic outlook, pinned the blame on the UPA government for India's slowing growth. It has stated that India is still a relatively closed economy and due to this, internal factors are far more important compared to external ones. The fund has stated that internal factors turned decisively negative for India at the start of 2011 and the impact lasted till the end of 2012. This is in stark contrast to other emerging markets like Russia and Brazil where external factors are more to blame.
We agree with this assessment of the IMF. While external factors like trade, the current account deficit and the monetary policies of the developed world all play a part; India's problems are largely self-inflicted. Poor infrastructure creation, policy paralysis and stalled corporate investments are all problems for which the government will take the blame. Add to this, high and persistent inflation which has prevented the Reserve Bank of India (RBI) from lowering interest rates. This has kept the cost of borrowing high and has discouraged large investments in several sectors. All these factors have led to a very slow pace of hiring which in turn has lead to increasing unemployment among the youth. Unemployment coupled with high inflation has severely affected consumer confidence in the country.
None of these problems were caused by external factors. There can be no doubt that the UPA government is primarily responsible for the grave damage that has been done to the economy over the last few years. With the general elections having begun, there are expectations that a new government will be able to change the situation. However, many of the problems plaguing the economy are structural in nature and cannot be reversed quickly. The new government will have its task cut out when it assumes office next month.