The Indian economy seems to have hit a rough patch. The country is grappling lots of serious issues ranging from external ones like fiscal and current account deficit to internal crises that seem to have plagued all sectors of the economy. The exports have dried up and the current account deficit has hit new lows. We are more vulnerable to foreign short term debt than ever. If global economic crisis, especially the debt crisis in Europe gets any worse, we might witness a flight of capital to safer heavens. Unlike in the past, we don't have the comfort of a cash-rich Government and strong domestic demand and hence there is no room to contain the damage at this stage. We have already failed to meet the fiscal deficit targets by a decent margin and are doomed to fail again here. The demand led growth story seems to have come to a standstill as well. The bearish outlook on demand has curbed not just the investments but capacity utilization levels as well.
It is unfortunate that all these shocks haven't yet shook Government to get over policy paralysis.
It is still busy passing the blame on global crisis and has found a fresh scapegoat in the form of monsoons. What is surprising is the general optimism that things will be better. It is good to be optimistic, but not at the cost of losing sense of realism .The Government seems to be frivolous and impervious to damage and pain it is causing by delaying the recovery process. Meanwhile, the key areas such as energy and power seem to be bearing the brunt. We don't need an economist to know where we are heading. The back to back blackouts and industries running idle capacities are evidence that the country is facing a slew of crises. And it's not just about lack of power or coal supply anymore. The lack of direction and action has brought us to a situation where the crises are interlinked. A fault line in one area is bound to shake the entire foundation and economy.
Take for example the coal supply crisis and lack of power reforms that have left State Electricity Boards with piles of debt. When things turn worse, it won't be just the power sector taking a setback. It will drag banking sector that happens to be the major lender. And it's not just the power sector loans at the risk of going bad for banks. The increase in corporate debt restructuring and poor prospects of agriculture are clear signals of the increased risks for the financial sector. It's hard to say what will go down first and who will be dragged along.
All these issues make it hard for someone to show faith in the Indian economy. With every possible crisis assuming bigger proportions, we risk the possibility of a downgrade to junk status and getting stuck in a vicious cycle. Amidst all this, what is baffling is the lack of action from Government quarters. With the country facing multiple crises, what we need a plan of action and the will to implement it. On the contrary, it seems to be emulating Nero and fiddling as India burns.