New Delhi, (IANS) Prime Minister Manmohan Singh’s United Progressive Alliance (UPA) government, which completed three years of its second term Tuesday, has little to cheer on the economic front as GDP growth has been sluggish, inflation remains stubbornly high, the fiscal deficit widened and a policy paralysis perception dampened business sentiments.
Economic growth has remained sluggish in the last three years after the robust 8 percent growth registered during the first five-year term of the UPA government 2004-09. It is expected to slump to 6.9 percent in 2011-12 against the budgetary target of around 9 percent. The government has targetted 7.6 percent GDP growth for the current financial year.
However, given the current trend, even 7 percent growth looks difficult. Investment bank Morgan Stanley Monday cut its growth forecast on India to 6.8 percent for the current financial year from its earlier estimate of 7.5 percent.
Inflation has remained stubbornly high in the last three years, prompting the Reserve Bank of India to hike key policy rates 13 times, leading to higher cost of borrowings.
However, the RBI policy could not make any remarkable impact in controlling the price rise. Common people was hit hard with prices of some essential commodities like vegetables and fruits almost doubling in the last three-four years.
Recent data shows that the monster of inflation continues in the system.
The headline inflation based on the Wholesale Price Index (WPI) accelerated to 7.23 percent in April as compared to 6.89 percent in the previous month. Inflation based on retail prices entered into double-digit largely due to a sharp increase in the prices of vegetables and food items.
Because of the high public spending, the fiscal deficit grew to 5.9 percent in 2011-12 from 4.9 percent in the previous year. It was recorded at 6.5 percent in 2009-10 and 6 percent in 2008-09.
The rupee slumped to a record low of 55.13 against a dollar Tuesday afternoon. It has lost almost 35 percent of its value since touching a high of 39 against a dollar in January 2008.
The dismal economic indicators have dampened business sentiments.
Last month, global credit ratings agency Standard & Poor’s lowered its outlook on India to “negative” from “stable” and warned of a ratings downgrade citing deteriorating economic indicators and slow progress on fiscal reforms in the backdrop of a weakened political setting .
Stock markets have also witnessed turbulent times. The benchmark Sensex of the Bombay Stock Exchange has dropped nearly 23 percent since rising to a peak of 21,000 points mark in November 2010.
However, the Sensex has gained over 16 percent since May 2009, when Manmohan Singh began his second term. Sensex is hovering around at 16,000 points this week.
Forex reserves stood at $291.80 billion during the week ended May 11, as per the latest official data.
The dismal economic performance in the last three years could be partly attributed to the unfavourable global economic environment.
However, the government’s inability to push forward key reforms is perceived by many the bigger reason for the current gloomy economic situation.
Important economic legislation like the Goods and Services Tax (GST), the Direct Tax Code (DTC), the Companies Bill, the Pensions Bill, the Insurance Bill, the Banking Laws Amendment Bill and the Land Acquisition Bill have been pending for years.