What is holding back the Indian economy?

Wed, 31 Oct Pre-Open

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What is the most productive asset that India has? Being one of the fastest growing developing economies, the Indian economy holds a huge promise because of its favorable demographics. It is one among the countries with the largest young population in the world. And as these better educated and skilled youngsters enter the job market, the factors like productivity, innovations, efficiencies and in turn per capita metrics are bound to grow as well.

However, a young population by itself will not be enough to accelerate the domestic economy that has currently struck a slow phase. What it needs to unleash its potential is a robust infrastructure and job opportunities. And we need a higher involvement of private sector to accomplish the same.

Unfortunately, the climate in India has not been very congenial for private investment. When it comes to fair job and livelihood opportunities for the youth entering the job market, we are worse than what we were five years ago. And the slowdown has pushed us into a vicious cycle. This is how it works. The slowdown in demand leads to contracted sales growth. On the other hand, expenditure is difficult to manage accordingly. This in turn leads to weaker margins. The expectation of weaker margins discourages and defers investment plans and the cycle goes on.

So is there a way out of this cycle? Certainly, there is. The challenge can be overcome through a combined involvement of favourable regulatory scenario, access to finances to raise capital for investments in infrastructure and ensuring better credit quality and lowering credit risks for the financial institutions that will fund these expansions. With more investment in capacities and better access to resources through higher technology, more jobs will be created .This hopefully will revive the demand and bring the much needed turnaround.

With recent announcements to hike power tariffs, debt restructuring plan for state electricity boards, allowing foreign direct investment (FDI) in multibrand retail and increase in diesel prices, we have hit the right note. But these reforms are just the baby steps. We need to go a long way before we can expect to witness the tangible impact such as doubling of per capital income - a milestone that the other Asian peers have already achieved. To conclude, boosting infrastructure is critical to the growth in the economy and though it may seem a difficult task, is not impossible to achieve if the Government shows the grit to undertake and execute reforms well in time.