India in trouble

An economic downturn, if not meltdown, appears inevitable in India. India's economy is witnessing degradation in many sectors. India seems to have come full circle. It was in 1991 that India faced a severe financial crisis on account of balance of payment issues brewing since 1985. With liberalisation of trade imports soared, leading the country to face twin deficits. By the end of 1990 in the run-up to the Gulf War, the situation became so serious that the Indian foreign exchange reserves could barely finance three weeks' worth of import while the government came close to defaulting on its financial obligations. By July that year, lower reserves had led to a sharp depreciation of the rupee, which in turn exacerbated the twin-deficit problem. Moody's had downgraded India and its rating further went down after the budget was not passed. Global credit-rating agencies further downgraded India making it impossible for India to even get short-term loans and the government was in no position to give any commitment to reform the economy. The World Bank and the International Monetary Fund (IMF) also stopped their assistance, leaving the government with no option but to mortgage the country's gold to avoid default on payments.

This led the Indian government to airlift national gold reserves as a pledge to a large conditional bailout from the IMF and WB in exchange for a loan to meet its balance of payment obligations.

The impact of current economic downturn in India surfaced around a year back, raising alarm bells for a re-elected government of PM Narendra Modi to act decisively. The government took some measures but underestimated the enormity of challenge.

Moreover, the second tenure of Modi commenced with government's focus on meeting the RSS mandate. In a short period of a year, Jammu & Kashmir was deprived of autonomous status and a highly controversial citizenship law passed by India's parliament.

Last week, PM Modi invited selected business leaders to a brainstorming session with a view to devising a plan to move India out of its economic stalemate. Some months back, a similar session was held which recommended tax incentives to businesses, which was readily accepted by the government and rolled out. This did not yield the expected results and the economy continued to slide. Today, the economic dynamics of India are far too complex to be resolved through such sessions. Much of today's India is paralysed by demonstrations against the citizenship law, prompting a number of leading countries to issue travel advisories to their citizens against travel to India. The occupied state of Jammu and Kashmir is under curfew since months, farmers of India are blocking roads protesting against loss of income due to economic slowdown, thousands of blue and white collar workers are being laid out due to widespread closure of industry and businesses and a grim slowdown in real estate and construction industry while inflation is on the rise.

The incumbent government in India appears to have been checkmated on both fronts - governance and economy. It is not known how it will overcome these challenges. India is a country where even one percent drop in GDP growth pushes millions more below the poverty line. PM Modi's woes in relation to governance and economy are self-inflicted, the product of his myopic way to view the situation.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)