No Matter Who Wins the Elections, the Indian Economy is headed for Turbulence Times
Taking Stock of Where the Indian Economy Stands Now
With the conclusion of the mammoth Indian Elections spread over two and half months, it is now time to take stock of where the Indian Economy stands and what is in store for it in the months ahead.
While Exit Polls show a clear victory for the BJP (Bharatiya Janata Party) led NDA or National Democratic Alliance, our point is that even if they form the government for the second successive term, things are not looking bright on the economic front.
Indeed, if by some outside chance the UPA or the United Progressive Alliance comes within striking distance of forming the government, they too will face serious challenges in getting the economy back on track.
Our assessment as mentioned above is based on a broad set of macroeconomic and microeconomic factors that can cause the best laid plans to go waste.
Indeed, even in 2014, when Prime Minister Modi who was elected on an Acche Din or Good Days to come promise, it was not long before the inherent challenges in managing a diverse economy such as India came to the fore.
While Modi set out to undo some of the damages caused by the previous government, he also was responsible for the drastic decision to demonetize the currency and ram through the GST or the Goods and Services Tax.
The Mammoth Challenge of Jobs Creation and the Need for Drastic Action
First, the most immediate and pressing challenge is to create jobs by the Millions rather than Thousands or Hundreds of Thousands.
With the ranks of the unemployed swelling by the day and the multitudes of youth entering the workforce every month, the only way to stave of mass social unrest lies in the ability of the incoming government to create jobs.
While at one point in the last decade, the so-called Demographic Dividend or the youthful India was supposed to have a clear advantage over other emerging markets, thanks to its ability to absorb as many jobs as were created, the present situation is that this can turn into a Demographic Nightmare.
In other words, absent drastic actions by the Incoming Government, India is sitting on a Demographic Time Bomb that can go off at any time.
Indeed, in our view, the jobs crisis ranks higher than any other challenge and it are for this reason that we believe that there is turbulence ahead for the Indian Economy.
How Debt is Choking the Indian Economy and Redressing the Structural Imbalance
Next, Debt is literally and figuratively choking the India Economy and it is high time the New Government did something about it.
While in the First Term, PM Modi could rightly claim that he had inherited an Economy that was mismanaged badly and hence, he was cleaning the mess, there are no excuses this time around if he fails to address the Structural Challenges such as High NPAs or Non Performing Assets on the Balance Sheets of the Banks and the equally high Debt that has been incurred by the private sector.
Indeed, apart from the jobs crisis, the indebtedness of the Indian Economy ranks as one of the reasons why there is turbulence ahead.
In addition, the Incoming Government has to grapple with falling exports, lowering consumption, and weaknesses in rural demand, which are other reasons why the Indian Economy might be turbulent in the near future.
Moreover, foreign capital is flowing into Distressed Assets purchases rather than in Investments that create jobs and it is high time the New Government addressed this imbalance.
Indeed, there is no bigger challenge than to Kick Start the Economy through any means possible including lowering Interest Rates which should be easier now that the RBI or the Reserve Bank of India is packed with and headed by loyalists of the BJP.
Is India Becoming another Greece before the 2008 Recession?
Talking about the last point, it is the case that there is a need for more transparent and democratic functioning of Institutions that are responsible for managing the Economy.
Moreover, it is highly worrying that even the GDP or the Gross Domestic Product and the Employment statistics are being manipulated and doctored figures are being presented.
While this charade would be sustainable for a while, sooner or later the Cat would be out of the Bag and then the Day of Reckoning would come wherein facts matter rather than fictions. Indeed, there are parallels with Greece here as they borrowed and splurged while the good times were on and once the party was over, the Greek Economy crashed.
Thus, we caution that unless these structural challenges are addressed, the India Economy would soon have its Greece Moment.
Whats at stake is not only the credibility of the Economic figures but the very real possibility that the Economy would implode unless corrective measures are taken. In the same manner in which the Financial Crises of the Last Decade took everyone by surprise, there is a chance that that would recur.
Lastly, despite these challenges, India continues to forge ahead and this is mainly due to the Entrepreneurial nature of the people.
Therefore, our advice to the New Government is to encourage the Entrepreneurial spirit rather than stifling it and promote policies that would go a long way in making India a Global Powerhouse.
In the same manner in which the Industrial Revolution was powered by Entrepreneurs, the Indian Economy too can prosper if there are more micro measures rather than macro measures alone.
To conclude, while predicting what happens next is risky, there are enough pointers on the directions in which we are headed.
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