2012 Will Be The Worst Year in a Decade for the Indian Economy


In the January-March period of 2012, the Indian economy grew at 5.3 percent. Blaming the Eurozone debt crisis, rising international petroleum and commodity prices, the Prime Minister of India said, “In these difficult times, we must do everything possible to revive business and investor sentiment (and) we must work to create an atmosphere which is conducive to investment and to removing any bottlenecks to growth.”

High inflation rate of around 7 percent is eating up cash from the pockets of middle class. The higher interest rates have made home loans and car loans almost unaffordable. The European sovereign debt crisis and sluggish US recovery have affected the Indian economy to a certain extent. However, the biggest reason for the slowing economy is “Policy Paralysis” of the central government. The coalition government is shying away from taking bold measures fearing that the other parties in the coalition may oppose the reforms, as they have done several times in the past.

Impact of the slowing economy is not just a statistical phenomenon. It’s already being felt in the job market. “The first quarter of 2012 is extremely uncertain, all companies are on wait and watch. A lot of companies are also choosing to hire as, and when a requirement comes in. They are not hiring in anticipation,” says Sunil Goel, the director of GlobalHunt, an executive search firm. The rupee is at historic lows to rupees 56.33 per dollar, as investors park their assets in safe havens.

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Bringing the economy to the pre-crisis growth trajectory would require the government to focus on several key economic reforms such as FDI, infrastructure, minerals, land and electricity. The encouraging fact is that, despite the policy paralysis of government, the corporate sector continues to perform well. “If you look at overall corporate performance and their growth quarter-on-quarter, the top-line growth has not slackened considerably. Even if you knock off inflation from top-line growth, growth is still quite robust,” says KV Kamath, the Chairman of ICICI Bank.


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