Indian economy

After 1991, liberalisation and globalisation - opening up our economy, has seen enormous response from the world; that investing in India is a good investment and there are plenty of long-term business opportunities. 

After 1997, there have been massive investments by foreign investors into our stock market. Plenty have made crore of rupees and plenty have lost also. 

In 2007, excessive selling of collateralized debt/loan obligation to various international investors through the process of securitisation backed by inefficient lending practice by banks and financial intermediaries, has resulted in a loss of around 3-4 trillion dollars. Commonly called the sub-prime crisis.

Greek and many other eurozone countries had issued sovereign bonds but due to inadequate production output and revenue for the government, is facing a extremely dire situation. The government is bankrupt. Is India following the same footsteps?

Now, in India, manufactoring sector is steadily losing its growth rate; energy sector is doing very poorly because many important projects are halted because of corruption, ineffecitive policies and scams. Many industries are shutting down due to lack of opportunities. Vodafone case has shaken up the investor confidence in Indian business environment and beginning to consider other south-east asia countries for business. 

For quite some time, investors are not really looking at returns arising out of capital formation or profitability of industries, but rather they are hoping to see higher inflation, which will increase their returns. For example they want Gold prices to go up, they want real estate market to go up, which is why these two markets are showing higher returns for investors. But it is important to keep in mind that the higher returns is due to inflation and not due to growth in real terms. Crude oil is limited and so the prices will keep increasing, but how much inflation can our country handle now and in the near future? Higher inflation along with lower GDP is extremely dangerous. Food security bill will add more inflation into our economy. And to fund this bill, DTC is going to be harsh on the tax-payers.

So far India was complacent that funds are coming in via FDI, FII, PN, etc, but it is beginning to be clear that these investments in our country has only concealed our weaknesses, and whenever the weaknesses are about to be visible, the government increases the FDI in the existing sectors and opening many other vital sectors to FDI, which were suppose to be funded by internal funds.  How and why did we become helpless without FDI and FII? Our GDP, infrastructure etc are all dependent on the quantum of FDI, which is not a good place to be. 

RBI is completely against issuing sovereign bonds to stablise rupee because of its long term adverse effect on our economy. Obviously our politicians are more concerned about election than the health and safety of our economy, and trying to overpower the RBI in the process of making monetary policies for the country. Let us hope the government does not issue sovereign bonds.

One does not need to be an economist to understand that India is on oxygen, oxygen provided by foreign countries via FDI, FII, PN, etc, and they will only remain invested till they believe they shall earn satisfactory returns. Are we surviving on borrowed time, because we are definitely surviving on borrowed money? And government will do everything to not let us know the facts that could affect their elections. 

Question 1. What will happen when these foreign investors no longer believe that India can fetch good returns on investments? To what extent our GDP will be hit?

Question 2. What will happen when government, in order to ensure that investments flow in, start issuing sovereign bonds which is going to be devastating for the economy in the future? Fiscal deficit will increase uncontrollably. 

Question 3. What can we do in a situation where India's foreign debt is increasing day-by-day, and not having enough capital formation and infrastructure to repay and sustain itself? We don't have our own money to run our economy. We are constantly borrowing.

Question 4. If we have accumulated enough money for ourselves, then what about our children, our grandchildren? How will they make a living in such difficult economic conditions? 

We have many options but it is clear that we do not have one option; and that option is of being ignorant and arrogant. 

I hope there is curiosity after reading this to know more about what is happening to our economy. Where are we headed?