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India, a south Asian nation, is the world’s second most populated country, behind China. It has been experiencing tremendous economic growth over the last two decades, averaging 7%; since it started developing into an open-market economy. However, according to CIA.gov, India is still engulfed by its past autarkik policies, that might hinder continued economic growth.
The Indian economy has been projected to grow at 6.9% in 2012-2013, but some economists believe that this rate may not be correct. According to Wall Street Journal, India’s economic data is losing credibility, the report also points out the government’s April revisions of the inflation rate from 7.23% to 7.5%, and industrial production rated at 0.9% contraction, as compared to the initial 0.1% growth. However, during the month of June, inflation declined to 7.25%, while the industrial production rose to 2.4% in May.
Part I-Brazil’s Slowing Economy
India had been rated as an investment grade by Credit rating firm Standard and Poor (S&P 500), but in April the firm announced that India may face a downgrade, indicating a negative economic outlook for for the country. However, the International Monetary Fund (IMF), predicted an average of 6.9% growth for the for 2012-2013, despite possible shocks from the euro zone crises, which the Bretton Wood member believes could results in 1.25% lower.
According to world bank data, the Indian economy rebounded robustly in 2010, from the global financial crisis of 2008/2009, most of which was attributed to strong domestic demand; the real economic growth exceeded 8% year-on-year. Nonetheless, this gigantic growth was halted in 2011, due to high rate of inflation and interest rates coupled with stagnating progress on economic reforms. The trend at which these woes have affected the countries economic growth is depicted in the chart below, courtesy of Trading Economics.
Additionally, the CIA summary notes that India’s economy is under pressure from high international crude prices, which “have exacerbated the government’s fuel subsidy expenditures contributing to a higher fiscal deficit, and a worsening current account deficit.” Economic reports have have not been given any priority in the country; the only reforms witnessed in 2011 came as a result of corruption scandals that have derailed legislative work.
However, India has a very youthful generation that guarantees medium-term growth outlook and low dependency ratio, healthy savings and investment rates, as well as increasing integration into the globalization. Worryingly, India has several terminal challenges that it is yet to address fully.
They include: inadequate physical and social infrastructure, widespread poverty, limited non-agricultural employment opportunities, accommodating rural-to-urban migration, and scarce access to quality basic, and higher education. These are some of the hindering factors that are raising question marks over the status-qua of this BRIC country’s ability to live up to Goldman Sach’s predictions.
Indiastat.com reported that India’s consumer price index (CPI) dipped to settle at 10.2% in June, while its GNI index per capita income stood at $1,410, having maintained a run above the Average for South Asian countries, and just below the average for lower middle income, as demonstrated in the chart below courtesy of world bank.
An ETN which tracks the Indian stock market, MSCI India Total Return Index (NYSE:INP) is actually up approximately 8% this year. However, the one year return for INP is approximately -30%. Since Mid March 2012, MSCI India Total Return Index (NYSE:INP) is down close to 17%.
India appears to have several challenges toward living up to its expectations as a BRIC country. It will need to do a lot more than hunt out perpetrators of corruption, as economic performance remains critical to this course.