Over the past few months, articles about the health of the Indian economy have been making headlines. On a broader level, emotions have been quite contradictory. While the PMs and the Ahluwalias have been painting rosy pictures about India's future - stating that the current phase is just an aberration - a number of economists have been raising red flags.
The head of the Prime Minister's Economic Advisory Committee Mr. Rangarajan was earlier of the view that India's current slowdown was just a temporary phase. But now he has acknowledged that things may not be all that good after all. He also goes on to say that emerging markets, including India, are starting to see 'stagflationary tendencies'. In its simplest form, stagflation is a situation when inflation levels are high and growth levels are low.
Mr. Rangarajan referred to the monetary policies across the developed parts of the world which has caused inflation to remain in the uncomfortable zone. As for the slowdown in India, it is attributed to a bunch of factors. These include high interest rates and overall jittery sentiments. This situation extends the dilemma for the Reserve Bank of India (RBI). If the fight to curb inflation continues, it would further damage investment sentiments.
Comparisons have been made of the economic health of the country today with what it was back in the early nineties; the low GDP growth rates and the high levels of current account deficit. Not to mention the high inflation level at present. As pointed by Firstpost, one charitable thing is that the despite all these factors working against the economy, India has not yet seen a crisis. But this in self could be a reason for why the politicians could be complacent.
All in all sentiments and views of businesses and industries are nowhere close to the optimistic views of the politicians. With these extreme predictions, a desired growth rate has to be kept in mind. The same would lie somewhere in between.
An interesting point noted by Indian economist Mr. Arvind Virani is that reforms need to be made at regular intervals. In other words, the politicians should not become complacent else it would lead to a loss of opportunity. We could not agree more with Mr. Virani. A constant effort to spruce up the economy by way of announcing reforms at regular intervals is required. It would only make sense for the government to take pro-reform efforts instead of waiting for a situation when it has got its back against the wall, thereby requiring it to take quick efforts in desperation.