By Nisha Sharma
Several news reports are speculating that the bustling and red-hot
economy of India may be decelerating. Depending on the macroeconomic
point of view, India's economy could either be slowing down or
screeching to a halt. The writing is on the wall for some observers,
while others are more cautious in their analysis.
India's economy was once seen as a shining example of
what good education, hard work and a sound sovereign monetary policy
can do for a nation's development and for the welfare of the citizenry.
The economic growth rate has been impressive: India's Gross Domestic
Product (GDP), which is now just under 8%, was below 5% at the beginning
of the 21st century. India proudly became the "I" of the BRIC nations,
that famed group of countries -Brazil, Russia, India, and China- for
which unbridled economic output became their rallying cry.
There is a popular belief that India's economic success can be
attributed to its lucrative business outsourcing contracts. While it is
estimated that 23% of the workforce is currently engaged in the growing
Information Technology and service sectors, India's growth is also due
in great part to their agricultural, energy, manufacturing, and
Current signs of the economic slackening in India have been widely
reported by the world's financial news outlets. A sudden chill was felt
in the automotive sector in October, as sales of passenger cars dropped
by more than 20%, and manufacturing slowed down by more than 25% in the
same month. The last time such anaemic car buying was witnessed was in
December of 2000, mostly as a consequence of the dot-com bubble. The
rate of exports has been cooling down as well, even though it has still
managed to grow by 10.8 % since last year. Other countries would go to
war for such a healthy rate of exports, but it is important to put into
context that the Indian economy was getting used to export rates as high
as 82 % in July.
The most obvious sign that India may be in the midst of a slump comes
courtesy of Moody's Investor Service, the prestigious -yet often
maligned and controversial- credit ratings agency. Moody's has changed its outlook on India's banking system to negative
As part of its rationale, Moody's analysts have expressed concern over
the vertiginous loss in the value of banking stocks. According to
Moody's, the slowing economy may trigger a string of loan delinquencies
and defaults. Reuters reported
on Nov. 11 that the Indian central bank will keep a watch on the liquidity situation to decide on open market operations.
Courtesy Nisha Sharma of CompareLogbookLoans.co.uk