The following post is not supporting Modi nor a satirical mockery on government's (un) performance. If you have time please read
Well, we have been reading a lot about India's current crisis. The matter that has hogged the maximum limelight over the past few months is India's widening current account deficit (CAD). And the result is steep fall in the value of the Indian rupee against the US dollar.
What's the cause of this CAD crisis? The government and experts have largely focused on a couple of issues. One, high gold and crude oil import bills. And two, flight of capital from emerging markets owing to the US Fed's likely tapering of QE.
But one very major element of the current crisis has been largely ignored. An article in Business Line by S Gurumurthy throws light on this less-talked-about issue. As per the author, the real culprit of the CAD crisis is unprecedented imports of capital goods during the UPA regime.
Let's go back in time a bit to see how India's balances were when UPA took over office in 2004. Interestingly, India had reported a current account surplus of about US$ 22 bn in the immediately preceding three years. Mind you, that was despite the doubling of average oil prices then.
But since UPA came to power, the CAD kept on widening. Consider these statistics. During the NDA regime, average annual capital goods imports were about US$ 10 bn. But as soon as UPA came to power the imports jumped to US$ 25.5 bn in 2004 itself. And of course, capital goods imports have been burgeoning ever since. Since 2004, India's total capital goods import bill has been US$ 587 bn.
Let us now see how capital goods imports have had a greater impact on CAD than crude oil or gold. After off-setting oil imports against oil exports, the aggregate net impact on the CAD has been US$ 515 bn since 2004. In case of gold, if you adjust for exports of gems and jewellery, the impact on the CAD has been about US$ 161 bn.
One may argue that unlike gold and oil, capital goods are income generators. And hence, good for economic growth. But the economic data doesn't seem to support this argument. As per the author, India's capital goods imports increased 79% in the last five years. But the growth rate in the index of industrial production declined from 11.5% to 5% level during this period. But it's not just capital goods. India's manufactured goods imports have also shot up 20 times over the last 9 years.
What does all this do? A direct casualty of uninhibited imports has been the domestic manufacturing industry. It simply hasn't been able to hold up against the onslaught of imports.
I very much agree with the author's views. Instead of supporting the manufacturing industry, the government seems to have only sabotaged its growth prospects. And here you have an economy that's in a very weak spot.
Well, we have been reading a lot about India's current crisis. The matter that has hogged the maximum limelight over the past few months is India's widening current account deficit (CAD). And the result is steep fall in the value of the Indian rupee against the US dollar.
What's the cause of this CAD crisis? The government and experts have largely focused on a couple of issues. One, high gold and crude oil import bills. And two, flight of capital from emerging markets owing to the US Fed's likely tapering of QE.
But one very major element of the current crisis has been largely ignored. An article in Business Line by S Gurumurthy throws light on this less-talked-about issue. As per the author, the real culprit of the CAD crisis is unprecedented imports of capital goods during the UPA regime.
Let's go back in time a bit to see how India's balances were when UPA took over office in 2004. Interestingly, India had reported a current account surplus of about US$ 22 bn in the immediately preceding three years. Mind you, that was despite the doubling of average oil prices then.
But since UPA came to power, the CAD kept on widening. Consider these statistics. During the NDA regime, average annual capital goods imports were about US$ 10 bn. But as soon as UPA came to power the imports jumped to US$ 25.5 bn in 2004 itself. And of course, capital goods imports have been burgeoning ever since. Since 2004, India's total capital goods import bill has been US$ 587 bn.
Let us now see how capital goods imports have had a greater impact on CAD than crude oil or gold. After off-setting oil imports against oil exports, the aggregate net impact on the CAD has been US$ 515 bn since 2004. In case of gold, if you adjust for exports of gems and jewellery, the impact on the CAD has been about US$ 161 bn.
One may argue that unlike gold and oil, capital goods are income generators. And hence, good for economic growth. But the economic data doesn't seem to support this argument. As per the author, India's capital goods imports increased 79% in the last five years. But the growth rate in the index of industrial production declined from 11.5% to 5% level during this period. But it's not just capital goods. India's manufactured goods imports have also shot up 20 times over the last 9 years.
What does all this do? A direct casualty of uninhibited imports has been the domestic manufacturing industry. It simply hasn't been able to hold up against the onslaught of imports.
I very much agree with the author's views. Instead of supporting the manufacturing industry, the government seems to have only sabotaged its growth prospects. And here you have an economy that's in a very weak spot.
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