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Indian economy in mess: Who's to blame?
Mon, 4 Jun Pre-Open

The Indian economy has hit a rough patch. With rupee in a free fall, GDP growth touching a 9-year low and the country saddled with twin deficits, there seems to be no light at the end of the tunnel. Unless, of course, we do something that hits the nail right on its head- like undertaking reforms, encourage private and foreign investment to mention a few. But as people at the helm of affairs choose to remain blind to the economic mess, chances of a comeback are slim.

Passing the blame on to the Eurozone crisis is a convincing excuse. We managed quite well in the previous crisis when global economic situation was far worse. As a slew of data from all corners- be it GDP numbers, dismal performance across the sectors or a slowdown in private investment- raises red flags, it is obvious that the rot is internal. While private investment is the need of the hour, what is happening in the country is just the opposite. The Government consumption is on rise and that too at the cost of private consumption. This has crowded out private investment and brewed up an inflationary environment.

The picture ahead looks even gloomier. Fuel prices are already on the upswing. The decision regarding prices of diesel will lead to a no-win situation - we will have to live with higher inflation or unmanageable deficits. The domestic currency seems to be trapped in a vicious cycle. The higher outflows on imports are adding downward pressure on rupee and fuelling inflation. This further clouds the possibility of softening of interest rates.

With GDP growth touching new a low of 5.3% in the Jan-March quarter, any optimism seems grossly misplaced. While the Eurozone crisis and concerns regarding US economy slowdown may hurt capital inflows, they come with a silver lining of falling commodity prices, something that will reduce import bills and inflation and give the Indian economy a much needed breather.

To get back the global confidence in Indian economy, it's time that the Government gets its policies right, even if it comes at the cost of a temporary slowdown. But the first step will be to stop passing the buck and to own up for the mess we are in. Else it won't be long before a two trillion GDP dream ends up falling victim to colossal mismanagement of economy.

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