Is Central government ignoring Global Headwinds

Anyone keenly following global news would be aware of the dire states of the global economy. The eurozone is most likely be falling into double deep recession, the economic recovery of US post 2009 crisis has been tepid and fiscal cliff looms large on it, coupled to this are the worrying signs emanating from China, with falling GDP growth rates, stagnating industrial production and piling inventories the fear is of hard landing of Chinese economy. To add to all these economic woes is the ongoing crisis over Iran's nuclear program and a middle eastern war over the same.

Is India prepared to handle the worst, Are there contingency plans in place to protect ourselves from such global headwinds, Does the central government even care about whats happening around the globe. The answer to all of this seems to be a big NO

We have all heard the Prime Minister, Finance Minister and other government and ruling party spokesperson repeatedly blaming the ongoing euro crisis for all the ills that the Indian economy is suffering from double digit inflation to falling GDP growth rates. But do they really care about the ongoing global crisis?

Now of course the real reason for the economic mess the country is facing can be clearly be blamed for the mismanagement and in aptitude of the central government. Without going into detail of the various farcical decisions taken by the government it is clear that central government has led the Indian economy to this moribund state. But what is not clear is what will happen when the global headwinds start affecting us. Are we prepared?

In 2009, when the financial crisis hit upon us, our economic state was on a sound footing. The Current Account balance was at an modest -0.7% in 2007 (Source: World Bank), the GDP growth rate was at a formidable 9.8% (Source: World Bank) nearing double digit growth and Total reserves as percentage of Total external debt was at a comfortable 136% (Source: World Bank). But what is the position of economy now, GDP growth rates is tethering at 5-5.5% (Analyst Forecasts), Current Account deficit is at relatively high -5.21% (Source: World Bank) and our reserves can barely cover our total external debt with reserves to debt ration of 104% (Source: World Bank).

Now we might say the recent measures taken by the government are meant to address these issues, but are they. The so called cap on LPG subsidy has already been relaxed in several of the congress ruled states. FDI in Retailing bringing in significant investment that could tide our finances is ridiculous at the least. To top it, there are rumours that the centre is mooting to bring in food security bill with cost to exchequer of INR 1.19 Crores (India Today). The government on the whole is not at all serious about the tackling Fiscal deficit looming at large especially w.r.t rationalization of subsidy. We can clearly see that subsidy give aways to the voters is the main culprit for the present financial mess, the subsidy expense as share of total expense stands 59.75% today compared to 44.98% in 2004 during the NDA regime(Source: World Bank). And the ruling government is no mood to reverse or stop this short sighted quixotic schemes, on the other it is coming up with ingenious way to give away even more of the hard earned tax revenues to buy up votes with schemes to give free mobile phones and the likes of it.

 All this boils down to what will happen if the present global crisis worsens and there is a lehman like moment. The probability of such an event is likely and with Citibank citing possibility of Grexit at 20%. Rising tensions in austerity hit Spain, Greece, Portugal and Italy coupled with creditor fatigue in Northern countries can create a eurozone breakup. Add to this the stagnation of American economy and Chinese hard landing and the once in a decade leadership change. The world today is filled with uncertainty. IMF and World bank have all cut their global output forecasts. The majoritarian view is that worse is yet to come. But Our central government is oblivious to all of these and is happily pondering on how to crown the crown prince.

This is truly sad state of affairs and one can only hope that people of this Nation  whenever the next elections happen elect the kind of person who can take tough decisions, who has the organizational and managerial capabilities to lead the Nation and offer a clear vision of How India has to leap ahead.