ECONOMIC VULNERABILITY: FUTURE CHALLENGES FOR INDIA – BY Dr. BOBBY SRINIVASAN AND Dr. SUDHAKAR BALACHANDRAN

November 17, 2014 | Posted by bobbysrinivasan << back to blog

A country’s future economic growth is considered vulnerable especially when it depends on other country’s resources namely money, technology, manpower, collaboration, etc. Vulnerability increases when political events both inside and outside the country poses serious challenges. The current skirmishes in our border with Pakistan, China’s desire to occupy our territory and the coastal patrolling challenges because of the presence of foreign military ships located nearer to our territorial waters are all challenges to deal with. A country whose budget is already in a big hole (India plans to borrow nearly Rs.6 trillion approximately 29% of the total budget), these challenges will only increase economic instability and if the problem is not addressed proactively, this will result in much higher military alertness with its attendant costs.
Similarly, on the local front, we are facing twin deficits which in the years to come will cause a severe strain on the economy. For example, in the fiscal budget of 2014-15, our government is expected to borrow nearly Rs.6 lakh crore of a budget of Rs.18 lakh crore. All sources of revenue to the government are somewhat restricted. For a population of 125 crores, approximately 2.5 to 3 crore are filing income tax. Besides borrowing Rs.6 lakh crore, the government is also selling some of the public sector undertaking to raise around Rs.40 to Rs.50,000 crores. The unorganized sector in the economy is so large. We have 680000 villages in India and not even 10% of the villages have a branch of a bank. Another scary statistics is that of the approximately 900 million people who are in the age group of 16 to 60 not even 50% are working and even those who work only a small portion of people have a steady job. Time has come to wake up to this reality and the government should make all efforts to create jobs. If the number of unemployed and underemployed pile up over time, we will only have anarchy in this country.
The other serious issue which could make our vulnerability, a major stumbling block to our growth is our balance of payment and current account deficit problem. As of June 2014, India’s international assets amounted to 493 billion while the liabilities stood at 839 billion with a net indebtness of $347 billion. Generally if the current liabilities exceed the assets, this could turn into a serious problem of defaults and loan restructuring. Argentina is going through this mess and their currency Peso is getting lower and lower in value against the dollar. One of the major issues is that we are counting on FIIs money to support the currency. At the moment, the stock market index sensex has touched 28000 and they are making huge returns on their investment. Basically, FIIs have invested nearly 200 billion dollars and compare this with our today’s reserve of 314 billion. Any major shake out in the global stock market will see money rushing out of our market and the country. Thus driving our currency to ridiculous levels. This has happened in other countries and there is no certainty that this will not happen here.
In other words, we are vulnerable and our entire foundation is supported by overseas money and increasing deficit. The new government has many challenges in the pipeline. They have not yet been tested. As and when the problem surfaces, we expect our government to act decisively.
What we Indians aspire for is a country which can stand on his own feet, be prepared to meet the external and the internal challenges. We should not let foreign countries control our economy. What we require is a concerned and committed government; we need fiscal discipline and also need to move towards balances budget with a current account surplus. Does the present government have a plan and a road map to get there? Let us wait and see.

<< back to blog

About Us

TERM ZERO

Media

Rankings

Accreditations

NIRF

Campus

Blog

Annual Events

Full Time Programs

PGPM

PGDM

EXECUTIVE EDUCATION

Corporate Programs

PGXPM

PGPM Flex

MBA in Business Analytics

Family Enterprises Management

Ranked 6 ^th

Faculty

Research

Centers of Excellence

Conferences

Campus Recruitment

Internships

Placement Reports

Leadership Series

Talent Listings

Ranked 6 th

Ranked 6 ^th