India’s exports have consequently suffered. (See Table) Imports have remained high because of the high prices of energy and India’s rising demand for energy. Further, due to uncertainty the demand for gold in India has remained high in a period when gold prices have risen globally. Thus, the gold and energy import bills have been high keeping the import bill high. This is the reason for the continuing high trade account and current account deficits. The problem has been aggravated by the high debt ($ 365 billion in September 2012) in relation to the reserves ($295 billion in January 2013) the country holds, and this prevents the RBI from intervening more aggressively. Further, the proportion of short-term debt in the total debt has increased since 2008 and this is the one that can evaporate quickly destabilising the position of the country’s foreign exchange reserves. With the slowing down of the Indian economy, high rate of inflation and fiscal problems, the international community has been losing confidence in the Indian economy. Thus, the credit rating agencies have been threatening to lower India’s rating. This would lead to a higher cost of borrowing abroad and devaluation of the currency adding to the repayment burden. These would lead to an increase in the current account deficit. This sets up a vicious cycle of declining growth, higher current account deficit and lowered credit rating for India. dkjain4970927092007.blogspot.in/2013/08/indian-economic-crisis-is-creation-of.html
Posted on: Sun, 01 Sep 2013 01:41:04 +0000
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