Author: Pravakar Sahoo, IEG

A falling currency may be normal and acceptable when the economy is slowing, but the rupee’s apparent free fall over the last few months — more than 15 per cent since August — is a serious blow to the Indian economy.

Though a depreciating rupee is not surprising given India’s international investment position, with its higher rate of liabilities than assets, such a sudden fall is worrisome. Read more…

Author: Pravakar Sahoo, IEG

The Indian Finance Minister Pranab Mukherjee’s remarks at the launch of the World Bank Development Committee meeting recently expressed the concerns of emerging economies about the European debt crisis.

If not managed with an iron hand, the crisis will have a contagion effect and lead to a double-dip recession in the world economy. Read more…

Author: Pravakar Sahoo, IEG

Since Bangladesh achieved independence, seceding from Pakistan in 1971, India has been its major trading partner.

But since 2002 China’s trade with Bangladesh has increased many times over, surpassing that of India. Read more…

Author: Pravakar Sahoo, IEG

In its latest monetary policy review, the Reserve Bank of India (RBI), continuing with its tight monetary policy, revised policy rates upwards for the eleventh consecutive time.

Both the repo rate and the reverse repo rates went up by 50 basis points to 8 per cent (from 7.5 per cent) and 7 per cent (from 6.5 per cent) respectively. Read more…

Author: Pravakar Sahoo, IEG

The Indian economy showed remarkable resilience in the 2010-11 financial year.

It bounced back from crisis to the 9 per cent average growth rate of recent years. Read more…

Author: Pravakar Sahoo, Institute of Economic Growth

India’s 2011–12 budget is too conservative. It simply goes with the flow, faithfully assuming that a 9 per cent GDP growth will continue next year.

But there is a good chance growth will slow down; a sluggish business environment and a lack of confidence from both domestic and foreign investors portend this. Read more…

Author: Pravakar Sahoo, IEG

The forthcoming budget for the Indian finance minister is going to be tough to balance. He is juggling a number of issues: inflation is the most important, but containing the fiscal deficit, current account deficit, slowdown of manufacturing output, declining FDI inflows and sustaining growth are also major challenges. Absence of a serious effort at reducing the fiscal deficit and current account deficit implies a growing risk of adverse change in market sentiment, which would lead to an increase in inflation, high interest rates and low private and public investment, thereby hurting growth.

Since 2007–08, the fiscal deficit has increased to around 6.5 to 7 per cent of India’s GDP, subsequently leading to a combined federal and state deficit of over 10 per cent of GDP in 2009–10. The actual numbers are higher, by at least 1 per cent, as some items were kept off the balance sheet. Read more…

Author: Pravakar Sahoo, IEG, India

India’s Prime minister, Dr. Manmohan Singh and Japanese Premier, Naoto Kan signed India-Japan Economic Partnership Agreement covering trade, investment and intellectual property rights on 25th October 2010. The EPA will eliminate tariffs on goods that account for 94 per cent of their two-way trade over ten years.

This is a strategic move given the over dependence of Japan on China for trade in goods and the recent uneasiness in their relation due to arrest of Chinese sailors by Japan. In addition to the diplomatic row, there are reports of protest in China not to use Japanese products and rising cost of production in China. This makes a perfect case for Japanese exporters and investors to explore the Indian market as export destination and a production hub respectively. Read more…

Author: Pravakar Sahoo, IEG

India and China not only survived the financial crisis — over the course of the financial crisis their economies grew. This is the perfect time for India to attract much needed non-debt creating capital flows through foreign direct investment (FDI). The Indian Budget for 2010-11 has rightly proposed to simplify the FDI regime, maintaining FDI flows particularly by recognising ownership and control issues and liberalising the pricing and payment system for technology transfers, trademarks, and brand name and royalty payments. More importantly, the budget shows an intention to introduce user-friendly regulations and guidelines for FDI.

But while India is macro-economically well placed to attract FDI inflows, merely showing an intention to introduce user-friendly regulations without addressing the core regulatory, institutional and policy issues affecting FDI may not be enough to attract the huge amounts of FDI the country needs. Read more…

Author: Pravakar Sahoo, IEG and Nisha Taneja, ICRIER

China has been taking an increasingly active interest in South Asian countries over the past few years, seeking to rally friendship and support in order to surpass India’s dominance in the region. When the South Asia Association for Regional Cooperation (SAARC) was formed in 1985, they expected leadership from India, but India has yet to assume this role. Now China, India’s main political rival, is entering its neighbouring markets more aggressively through both trade and investment.

China has been the fastest growing economy in the region for the last decade and has surpassed India in terms of growth, world trade share, price competitiveness in product manufacturing and winning oil deals. Read more…

Author: Pravakar Sahoo

Given the backdrop of a prolonged Doha round with no consensus being reached on several issues in the WTO, both developed and developing countries are left with no option but to pursue regionalism in a rigorous way to cater to their developmental needs. India is no exception to the idea and has signed several agreements in the last five years, the Comprehensive Economic Partnership Agreement (CEPA) with Korea being the most recent. The signing of India-Korea CEPA on 7th August 2009 though delayed, has been welcomed and rightly so, by both the business community and policy makers from both the countries. This agreement which has provisions for substantial reduction of both tariffs and non-tariff barriers in a phased manner is expected to take India-Korea relations to a higher level and enhance India’s presence in East Asia.

Read more…