24 Mar 2011

India Inc. – Moving Ahead, or Staring Down the Barrel!

India Inc.’s GDP has grown on an average of 8 – 9% in the past few years and the IIP looked steady until now, albeit relatively low. A lot of economists and investors are looking at India as the next destination to sustain and expand wealth. More and more companies are looking to establish their presence in India to gain access to Indian resources and the population. Investors are increasing the amount of faith and money they place in the Indian stock market. India seems to be on a roll and the growth is at a maniacal pace.

But is this growth sustainable or eyewash? Or is it all a bubble simply waiting to burst! Fund managers cite 5 – 6% as the long term inflation figure to be considered. However, inflation figures hovered around the 12 – 15% mark for the last 2 years. This has mainly been dominated by wholesale food prices, which constitute 47% of India’s inflation figures. The UPA’s stint has been mired in controversies and volatile political issues and much of the time has been spent in fire fighting rather than actually taking time to implement population friendly policies. Sharad Pawar stated that his priorities mainly lay with the ICC rather than food and agricultural development and management in India. Ashok Chavan, Suresh Kalmadi, A. Raja, etc. were too busy in taking advantage of their positions to favour themselves and relatives. Unrest has consistently increased in Kashmir and Naxal affected areas, while all political parties are only trying to gain brownie points and mileage out of any scandals in India. Large projects with enormous investments have been stalled citing reasons like flouting of environmental norms, which could very easily act as a deterrent for companies planning setting up large projects in the country. All the RBI is doing to combat inflation is increasing basis points of its lending rate; the fear of this has already led to $900 million flowing out of the ever – so volatile Indian stock market. GST and other such policies are encountering roadblocks constantly, while petrol prices seem to have no control ever since deregulation has occurred. New laws of DTC are all set to further discourage common man from investing in the stock market and his savings will further dwindle away.

There seems to be a huge lethargy on part of the central government on encouraging our country’s growth. Many politicians are busy amassing all the wealth they can while they are in power for fear of not being re – elected in this democracy. Until recently, the government was in denial about inflation being a hindrance to growth and development, and when they finally gave in, it led to pandemonium on Dalal Street. This is evident in the drastic drop in SENSEX figures since the past 2 – 3 weeks.

The members in power need to dedicate time and effort in strengthening the economy which has tremendous potential in it. Alternatives should be provided for companies which cannot set up at locations off – bounds due to environmental regulations. Improvement in logistics for food items is quintessential. Reducing the number of intermediaries should be a part of the exercise to eliminate hoarding and spiralling of prices of important food items. The government can also look at its policies regarding export of important items to ensure there is no shortage of the same in the country. It will be good for India if the UPA and NDA concentrate on control of inflation and encourage more than just the existing 2 – 3% of the population to invest in the stock market to make it more robust and stable. Those funds will also empower the listed organizations to work on their expansion plans and aid in development of the country. The need of the hour is to concentrate on finance – friendly policies and reining in inflation rather than squabbling over pointers like lapses in Rahul Gandhi’s security. In all this, we are frittering away the momentum gained by the country until now.

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