The state of Indian economy is dismal
The indicators, be it the Sensex, INR, GDP growth, IIP (Index of Industrial Production), are all flashing red. The economy is in a dismal shape, the rupee has plunged to an all-time low, approaching the key psychological level of 56 – thanks to Euro crisis and global risk aversion. A widening current account deficit, which is likely to touch 4% and concerns of investment in India, has further added to the pressure on the rupee. The Indian currency has been the worst performing among its Asian peers, having lost 22 percent this year.
From India Inc’s perspective, the depreciating rupee will adversely impact its balance sheet. Companies with foreign debt on their books will be badly impacted as they will require more dollars to repay their loans. The oil companies too could be negatively impacted, as they will end up paying more rupees for the same value of dollar imports. On the other hand, export oriented sectors such as IT and textile should benefit from the depreciation. The stock market, which hit the upper circuit, after the UPA was elected for the second time in a row, is now in its worst phase since the Lehman crisis. Both the leading indices of the country have lost a third of their value since UPA-II came to power for a second term on May 22, 2009. The Sensex has fallen 32.94 percent since May 22, 2009, while Nifty has lost 33.62 percent in the same period.
The GDP growth rate has slipped to 6.5% in FY12. The IIP contracted by 3.5% in March, bringing down the average industrial growth for 2011-12 to 2.8% as compared to 8.2% in the previous fiscal year. Adding to the woes of decision makers and common people is the increase in inflation based on retail prices, which has been climbing quite alarmingly from 7.7% in January 2012 to 10.4% in April.