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Sunil Bhardwaj & Rohit Bhagat The Business School Bhaderwah Campus, University of Jammu
CONTENTS
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Introduction Literature Review Objectives of the Study Research Methodology Data Collection Discussion and Observations Conclusions Suggestions and Recommendations References
INTRODUCTION
Before LPG reforms in 1991 Indian economy was a domestic economy. More integration with other countries True growth story begin in 2003-04 when we left behind the Hindu rate of growth and has transverse it into 5-6 percent and then 9 percent in 2007-08. This can be attributed to both domestic and global factors. Some economist do believe that India & China are decoupled from rest of the world.
ECONOMIC SUSTAINABILITY
A sustainable economy ensures and encompasses various aspects such as economically healthy businesses with minimum impact on environment, sustainable agriculture, growth management, appropriate development of rural resources, improved trading and tourism and low impact regional planning and transportation systems. Technological advances in business, health, education and environment that provide new opportunities for communities (Dr. Aditi Sawant and Dr. Sachin Kumar Sharma, 2012).
LITERATURE REVIEW
There is a huge literature available on sustainability of economies in general and sustainability of Indian economy in particular. Different researchers have adopted different approaches and perspectives to the economic sustainability. 1. Dr. Aditi Sawant and Dr. Sachin Kumar Sharma (2012) have given the impact of FDI on the sustainability of Indian economy in the post crisis period. 2. Dr. Vinay Sharma and Aditi Sengar (2012) in their research work show that sustainability is challenge for businesses in rural market and recommend that building sustainable market linkage can combat this issue.
LITERATURE REVIEW
3. Rajat Setia, Chandan Sharma (2012) shows a relationship between the exchange rate and macroeconomic fundamentals which hold in the long run but the composition of parameters and their effect varies considerably overtime. 4. Kalim Siddique (2009) says that decoupled Asia from the rest of the world is too ambitious and shows the effect of financial crisis on India and China. 5. Raghbendra Jha (2009) identifies the channels through which the global financial crisis has impacted the Indian economy and examined short-run prospects for the Indian economy in the light of the global financial crisis and economys recent dynamism.
OBJECTIVES OF STUDY
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To examine the extent of decoupling of Indian economy from the world economy. To analyse the effect of global slowdowns on Indian economy. To recommend policy measures to make our growth story more sustainable in nature.
RESEARCH METHODOLOGY
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The piece of research is descriptive and analytical in nature. The features of this type of research are to report things that have happened or happening without having much control over these variables. The research uses facts and figures already available for analysis and inference by critical evaluation of data.
DATA COLLECTION
The paper uses secondary data for analysis and discussion. This includes: 1. Research Publications 2. Magazines 3. Reports 4. Publications of Organisations 5. Data and Statistics compiled by institutions 6. Research Journals etc
FACTORS BEHIND
US long continuous growth with low inflation which made mkt. & regulators complacent During good time Financial institutions grew big, took big risks, made huge profits & innovated many complex financial product and derivatives Banks took High risks without sufficient capital on the balance sheet to support it US risk management lagged behind innovation in the financial system. Results in liquidity crunch turning into Insolvency thus drying up of demand
-20 40 20
-60
-40
100 60 80
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan.'11 Feb.' 11 Mar.'11 Apr.'11 May'11 Jun'11 Jul'11 Aug'11 Sep'11 Oct'11 Nov'11 Dec'11 Jan'12 Feb'12
Exports
Imports
BALANCE OF PAYMENT
500000
400000
300000
200000 Current Account 100000 Capital Account Overall BoP Balance 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 -100000 2010-11
-200000
-300000
BoP surplus for first three years 2004-05 onwards BoP deficit due to CAD i.e. Rs 12174crores in 2004-05 to Rs 202532 Crores in 2010-11 Highest BoP surplus Rs 369689 Crores during 2007-08 As reaction to US crisis BoP turn negative Rs 97115 crores in 2008-09
Trade deficit was US$ 184921.69 mn for Aprilmarch 2011-12 higher than the deficit of US$ 118632.93 mn in April-march, 2010-11.
CRUDE OIL
120
100
97.33
88.93 75.05 57.18
93.47
80
66.45
71.03
60 36.54 29.12 29.86 34.6
40
20
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DEPRECIATION OF CURRENCY
Euro-zone resulting in euro losing value against US Dollar Depreciate more than 20-25% against USD with RBI losing $40-50 billion in reserves in the last few months RBIs intervention in the forex market has resulted in the decline of $336.5 million in the forex reserve to $287.62 billion on week ending 6 July 2012
DEPRECIATION OF CURRENCY
Exchange rate per US dollar
60 50.843 47.638 50 44.904 44.368 44.851 51.346 50.145 56.181 52.667 49.256 40 45.278 55.614 54.638 55.464 54.973
44.415
49.163
30
20
10
12
10 8 8.43 6 4 2 0 9.41 8.99
10.22
10.16
8.65
7.57
10.05
6.49 5.32
Jul/10
Jul/11
Oct/10
Aug/11
Jun/10
Aug/10
Dec/10
Sep/10
Dec/11
Mar/11
May/11
Feb/12
Mar/12
Nov/11
Apr/12
May/10
May/12
Apr/10
Nov/10
Jun/12
Oct/11
Jun/11
Feb/11
Sep/11
Jan/11
Apr/11
Jan/12
6.5
20
25
30
10 15
Aug/08
5.5 24 24 6 24 5 24 5.75 6 SLR (%) CRR (%) 6 6 5.5 4.75 Feb/12 Apr/12 Jun/12 4.75 24 24 24 24 Oct/08 Dec/08 Feb/09 Apr/09 Jun/09 Aug/09 Oct/09 Dec/09 Feb/10 Apr/10 Jun/10
25
Aug/10
Oct/10 Dec/10 Feb/11 Apr/11 Jun/11 Aug/11 Oct/11 Dec/11
25
CONCLUSION
Economic sustainability is a complex challenge for the countries in globalised world where the linkage between the countries is higher and isolation is limited, means any economic disturbance in one region affects the sustainability of other regions. In this study we have highlighted the challenges that are coming in the way of sustainability. There are various domestic and global factors like US subprime crisis, Euro zone debt crisis, crude oil prices, inflation, Balance of payment, Fiscal slippage and policy paralysis which are important for the sustainability of the country that is evident from the past experience of India. So proper manoeuvring of these factors is the need of the hour.
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To achieve sustainability good quality infrastructure is the most critical physical requirement for retaining faster growth and also stimulating foreign investments into Indian economy. Economic reforms related to macro policies (Fiscal, trade, financial, monetary and judiciary) keeping in view all the sectors and sections of the society can help the country to achieve sustainability. Foreign Investments in the form of FDI, FII, and FPI are very necessary for the country like India as it acts as an important source of long term as well as short term funds dismantling of barriers and induction policies in respect to these investments must be adopted so as to lure the foreigners towards large Indian market. Technological innovations and modernization is very necessary in order to increase the quality production so that exports can be enhanced and imports can be substituted. From the experience of global financial crisis, it is clear that neo-liberal economic policy of India has failed. So, there is a need for the restructuring and remodelling of Indias economic policy keeping in mind the complexities of globalisation.
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The root cause of Indian economy is the lack of political will in implementing reforms but the recent step of allowing 51 per cent of FDI in multiple brand retail seems to be in the right direction. So the policy paralysis must not be there. It is evident from the current scenario that Indian economy is affected to a large extent by the slowdown in Euro zone countries. So, India must encourage trade with more and more countries so that one countrys slowdown can be overcome by the trade with the other ones. Fiscal slippage is an important issue in Indian economy as it is adding to the countrys inflation and also negatively affecting the countrys GDP growth rate which necessitates the fiscal discipline in our fiscal policy. As India imports 70 per cent of the crude oil which is a huge fiscal burden on the country. It necessitates the shift from nonrenewable resources to the renewable sources of energy like wind energy, solar energy, water energy, hydrogen energy etc.
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Shreekant Iyengar (2012): The credit rating agencies-Are they reliable? A study of soverign rating. Vikalpa, the journal for decision makers. 37, pp 69-82 Rajat Setia, Chandan Sharma (2012): Macroeconomic fundamental and Indian rupee-dollar exchange rate. National conference on emerging challenges for sustainable business (june, 2012): IIT Roorkee, Roorkee Joman Mathew (2012): Balance of payment in India. Yojana, pp 43-45 M.R Ananad, GL Gupta, Ranjan Dash (2012): The eurozone crisis. Its directions and implications. Aditi Swant, Sachin Kumar Sharma (2012): Impact of foreign direct investment on sustainability of Indian economy in the post crisis period. National conference on emerging challenges for sustainable business (june, 2012): IIT Roorkee, Roorkee Madan Sabnavis, Samruddha pardkar (2011): Impact of euro zone crisis and global slowdown on India. EU (2011): European Union statement by the head of the state or govt. of euro area and EU institutions, Brussels. James L. Williams (2011): A discussion of crude oil prices, the relationship between prices and rig count and the outlook for the future of the petroleum industry. http://www.wtrg.com/prices.htm
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IMF (2011) Euro area policies: Spill over report 2011, Washington DC. http://www.imf.org/external/pubs/ft/scr/2011/cr11185.pdf Government of India (2011): Ministry of Commerce, New Delhi. http://commerce.nic.in/tradestats/filedisplay.aspx?id=1 Basant K Sahu (2011): Growth experience during post reform period in India economics and trade policy. Indian Institute of Foreign trade New Delhi. Government of India (2012): Economic Survey 2012. Ministry of Statistics and Programme Implementation, Central Statistical Office: Government of India. http://indiabudget.nic.in Rupee Depreciation: Probable causes and outlook by Amol Agrwal.
LIMITATIONS/SCOPE
It is a macro-analysis analyzing the effect of global slowdowns on macro-variables of the country. Study do not shows the extent to which different sectors are effected by global slowdown.
Tax regulation, News of corruption and scandals, red tape delays, absence of reforms, political and regulatory uncertainty and policy paralysis THAT WILL CONSTITUTE THE FUTURE SCOPE OF OUR STUDIES
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