INDIAN ECONOMY: FUNDAMENTALLY SOUND?

[Caution! Readers are strongly advised not to become judgmental about current economic situation based on this article, as I have deliberately avoided Buddha's middle path approach and relied on criticism.]

Tragedy of a liar is not that no one believes him/her, but the fact that the liar starts to believe his/her own words. This statement seems to be correct in the case of Indian government while dealing with the current economic situation. The number of times these politicians have talked about fundamentals of economy remaining strong that they actually have started to believe as a true fact. Are fundamentals of our economy really sound or is it an eyewash to boost the confidence of fellow Indians and investors outside? This is the question looming large at this juncture.

Indian economy is in shamble. GDP growth is at all time low (post 1991) ( first quarter of FY 2013-14 reported only 4.4% growth). Growth is sluggish but our PM is optimistic to achieve a growth rate of 5.5% to 6% by the end of this financial year. Reason being: "Fundamentals of Indian economy remains strong."

Another problem the country is facing right now is the Current Account Deficit (CAD). It is behaving like "SURSA OF RAMAYANA" ( who had the capability to expand her jaw/mouth, each time Hanuman expanded it's body). Whenever government intervenes to rein it, it further gets widened. Isn't the situation demanding policymakers to act like Hanuman ( who countered SURSA by shrinking his volume)?

Here comes the real issue. It is the falling value of rupee. Rupee seems to be enjoying the free ride under gravity. It is about to cross yet another psychological barrier of 70 ( currently hovering around 65- 68). Someone, out of sarcasm, tweeted "PROBLEM WITH RUPEE IS THAT IT IS NATIONAL CURRENCY. LOOK! WHAT HAPPENED TO OUR NATIONAL ANIMAL TIGER". I would further like to add in this about the fate of our national sport ( contrary to the fact that we had learned in our schools and G.K books, Ministry of Youth Affairs And Sports in a reply to an RTI query mentioned that India has not notified any national game). This crisis situation could have been turned into an advantageous one, had our export flourished ( although software industries are gaining a lot at this moment, stable currency is all that everyone wants). And they say our fundamentals remain strong.

Out of many solutions, the one on which our policymakers seem to have relied upon heavily is to liberalize the norms to bring more FDI, FIIs along with increased External Commercial Borrowings. In other word government is arming itself with tools to borrow more from different markets. And if this is true then shouldn't we conclude that government is following an old adage of Sanskrit which says "Rinam kritva ghritam peebet" ( eat butter, even if you have to borrow). All this is happening because of the illusion that our Fundamentals Remain Strong. Some critics call it POLICY PARALYSIS. I would rather call it "FUNDAMENTAL ATTRIBUTION ERROR" by which one blames the external factors overlooking the internal ones.

Inflation is another challenge which is presenting catch 22 situation in front of RBI. Whether to go for growth or to go for reining inflation is the million dollar question. So far RBI has done a commendable job (at least in maintaining it's independence); nevertheless, it has not been successful to achieve rupee stability.

Newly appointed RBI governer Mr. Rajan has said that "Our task today is to build a bridge to the future over the stormy waves produced by global financial markets." I would like to urge Mr. Rajan that the foundation of this bridge must not be laid upon wrong premises. It has rightly been said that crisis presents an opportunity. We must take a look at our fundamentals and address the concerns in an unbiased manner.