India's Economic Problems: Difficult Road Ahead?

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According to the Reserve Bank of India (RBI), India's current account deficit , swelled to US$87.8 billion (4.8% of GDP) during 2012-2013, from US$78.2 billion (4.2% of GDP) in 2011-2012. The reason behind India's swelling current account deficit in 2012 was lower exports and higher imports of oil, coal, and gold. Morgan Stanley, a global financial services firm, estimated that India's current account deficit stood at US$93.9 billion (5.1% of GDP) in 2012, just behind that of the US in absolute terms. Such a high current account deficit was expected to weaken India's economic growth, as it created a situation wherein investors dumped the country's assets...

The growth rate of the Indian economy since 2003-04 showed a correlation with the investment rate. For instance, the GDP growth was lower in the years 2008-2009 and 2011-2012, when the growth rate of investment was low. One of the major economic problems which India faced in 2012-2013, was lack of investments happening in the country. According to Harish Damodaran, Reporter and Editorial Analyst of The Hindu Business Line, "The economy's main problem today is investment, not fiscal and current account deficits that will take care of themselves."...

India's fiscal deficit widened to 5.7% of GDP in 2011-12, according to the “Economic Survey 2012–13” report. A high fiscal deficit was a cause of concern for the Indian economy as due to it, inflation increased; monetary policy expansion became constrained; external sector imbalances widened; and investment growth and employment took a hit. This resulted overall in weak economic growth in 2011-2012...

High inflation since 2009 had been the most challenging issue for policymakers in India. The inflation rate in India was based on the Wholesale Price Index (WPI). Inflation, as measured by the WPI remained above 7% since December 2009. During 2010-2011, it was as high as 11.1% and in 2011-2012 it was around 7.2%. Since the WPI included a higher number of products, it was given more importance than the Consumer Price Index (CPI) in India. The weight of manufactured products was 65% in the WPI basket...

India's economic situation in 2013, according to some, was a repeat of 1991, which was the worst economic crisis of India. However, analysts opined that the situation was not as bad as in 1991, as India had reserves to pay seven months of imports in 2013, compared to just 15 days in 1991.

India's growing economic problems in 2013 were a matter of great concern, especially its large current account deficit and rupee depreciation. Apart from this, the Indian Prime Minister's economic advisory council (council) opined that containing fiscal deficit at 4.8% of GDP could be a challenge for the Indian government...

Exhibit I: Outstanding Investments: Stalled Projects (2006-2012)
Exhibit II: Quarterly Investments: New Projects (2006-2012)
Exhibit III: FDI Inflows Top South Asian Countries (in USD billion)

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