Can Chidambaram Anchor the Sinking Ship of Indian Economy ?

India reports second straight contraction in industrial production in June, as the industrial activities not picking up and the investment activities becoming stagnant, challenging the policymakers to stabilise the battered rupee without hurting economic revival.


Growth in Indian economy has been stuck below 5 per cent for the past two quarters and analysts have been scaling back expectations for the current year, as the measures to support the rupee have pushed up credit costs. Meanwhile, the weak growth trend continuing for last many quarters has increased the risk of a vicious cycle building and making the economy much vulnerable and resulting in the impending risk of GDP growth going down to 3.5-4 per cent.


As the rupee is sliding alarmingly with the loss in near term almost up to 12 % to the dollar, Finance Minister P. Chidambaram is forced to find some fast solution and he will be eager to announce steps to encourage inflows, which could include raising money from Indians abroad, asking the state firms to raise debt abroad and also more clamp down on non-essential import items.


Of course these measures will assist the rupee in the short-run, but he must search the ways for raising the growth prospects, that may stabilise the rupee in medium to long-term .


But can we rely on the current Government, whose time to act has been left little or even may be reduced further, to stem the alarming slide in economy along with rupee, when the last few years have shown that it has miserably failed in all its actions as well seriously failed in policy planning front and most importantly faced set back in winning or maintaining the confidence of Indian investors, who are increasingly not inclined to raise their capex in Indian shore .


The Aditya Birla group has shown its plan to invest $1 billion approx in setting up a fertiliser plant in the US to take advantage of the falling gas prices in that country, though they still have a significant presence in India's fertiliser space, but they are reluctant to commit further, as in India policy paralysis in delivering the subsidy and stable and economic gas prices remains valid,more bogged down as being dependent on government reimbursement of subsidy delays.


In the ongoing slowdown, subsidy payouts to fertiliser companies had delayed considerably, which make the business unviable and forcing them to look to foreign shores. The look West policy or tendency is growing as Birlas joining RIL (RIL to invest $5.1 billion in US shale gas business) and many others , which is in effect counts as outflows, making the task much more difficult for the rupee and economy.
Refer:source