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Why is India's Growth Lagging?

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Information about Why is India's Growth Lagging?
News & Politics

Published on March 2, 2014

Author: desainirav12

Source: slideshare.net

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Why is India's Growth Lagging?
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Why is India’s Growth Lagging Behind? --Nirav Desai 15 January, 2014

1.High Inflation ✤ Persistently high inflation has raised the prices of essential goods beyond the reach of common man. ✤ Prices of vegetables have increased significantly especially onions. ✤ Oil and gas prices are increasing due to depreciating Rupee, increasing the input costs for manufacturers ✤ High inflation has reduced the purchasing power of the Rupee. ✤ Planning Commission of India characterizes inflation as a “Supply Side Phenomenon.” ✤ There is opportunity here in this difficulty.

2. Energy Security ✤ India imports 80% of requirements of oil and gas ✤ A weak Rupee makes these very expensive, leading to high inflation. ✤ Opportunities for corn ethanol and jatropha oil seeds as alternatives to petrol and diesel. Brazil achieved energy security through the use of corn ethanol. ✤ Electric cars as a means of diversification away from oil. ✤ Solar and Wind Power have become competitive on the free market. ✤ Solar Power and Wind Power Plants have 0 running costs unlike coal or gas based power plants. Makes solar very cost effective in the long run. ✤ Business opportunities in setting up of solar and wind power plants and also in corn ethanol production facilities.

3. Crisis in Fiscal and Monetary Policy ✤ Government under constant threat of credit rating downgrades from ratings agencies such as S&P and Fitch. ✤ Fiscal deficit target has been kept at 5% of GDP and is hard to meet. ✤ Tax revenues are not enough to meet the budgetary outlays. ✤ Goods and Service Tax which taxes consumption of domestic and imported goods and services on an even footing is the need of the hour. ✤ All countries that introduced VAT - Canada, Ireland, etc. have upgraded to GST as VAT cannot tax imports whilst GST can. ✤ VAT gives preferential treatment to imports vis a vis domestic products as domestic businesses are subject to VAT and foreign businesses are not. ✤ High costs of oil imports and peg of Rupee to trade deficit has put the Rupee in a tailspin which will crash this economy.

4. Liberalization ✤ Liberalization started by Dr. Manmohan Singh in 1990s is the greatest thing to have happened to India. ✤ India got a trade surplus in the years from 1990-95 when the exchange rate was approximately 20 Rupees to 1 USD. ✤ This indicates a sweet spot for the exchange rate of Rupee vs US Dollar. ✤ Pre-liberalization India had a balance of payments crisis and today India has a currency crisis. ✤ Stable macroeconomics are a must to produce growth in any economy. ✤ India could experiment with fixed exchange rates in the band present in the 1990-1995 period as has been done by China to a great success. ✤ Fixed exchange rates will give stable inflation due to reduced cost of oil and gas imports. ✤ As oil and gas are inputs to all of the economic activities we see, this will solve one of the biggest problems facing India today.

5. Improvements to Food Security Bill ✤ The government runs a Public Distribution System that buys produce from farmers at a Minimum Support Price and sells through the Fair Price Shops ✤ Urban population prefers to buy food from independent vendors and not Fair Price Shops ✤ Large amounts of food in the Fair Price Shops goes to waste as there is no demand whilst the population complaints food from independent vendors is too expensive. ✤ Modern storage facilities and supply chains can only do so much to prevent wastage of food in the PDS supply chain ✤ FM Pranab Mukherjee spent large amounts of money in modernizing the PDS so as to eliminate wastage of food grains due to poor storage infrastructure. ✤ Food in the Government run PDS could be distributed under the Food Security Bill to reduce burden on the Fiscal Budget. ✤ Business opportunities for roof top and garden farming.

5. Improvements to Food Security Bill ✤ The government runs a Public Distribution System that buys produce from farmers at a Minimum Support Price and sells through the Fair Price Shops ✤ Urban population prefers to buy food from independent vendors and not Fair Price Shops ✤ Large amounts of food in the Fair Price Shops goes to waste as there is no demand whilst the population complaints food from independent vendors is too expensive. ✤ Modern storage facilities and supply chains can only do so much to prevent wastage of food in the PDS supply chain ✤ FM Pranab Mukherjee spent large amounts of money in modernizing the PDS so as to eliminate wastage of food grains due to poor storage infrastructure. ✤ Food in the Government run PDS could be distributed under the Food Security Bill to reduce burden on the Fiscal Budget. ✤ Business opportunities for roof top and garden farming.

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