The Indian economy is in a crisis with slowdown in growth, rising fiscal and current account deficits amid persistent inflation, according to a study by an economic think tank.

“The Indian economy is in a crisis. While the growth rate has been declining...the issue (of high CAD) gets amplified against the backdrop of slowing economy, high fiscal deficit and persistent inflation,” National Council of Applied Economic Research said.

India’s Current Account Deficit (CAD) rose to a record 6.7 per cent in the quarter ended December 31, 2013.

Attributing high CAD to GDP ratio slowdown in exports and increase in imports of oil, coal and gold, the NCAER said that high CAD requires high foreign investment.

“This might be a risky proposition given the global financial volatility and keeping in view the interests of foreign investors,” it said.

The study said that the persistent increase will lead to macroeconomic risk as it raises concerns about the economy’s ability to honour its external payments obligations. “It also affects the confidence of potential lenders and investors.”

The NCAER study said that there is a need to boost the exports of merchandise and hence lower the deficit on balance of trade.

As per the study, manufacturing in India is still not internationally competitive in several sectors of production.

“Some long-term factors that need attention involve infrastructure, labour laws and governance reforms...moving to goods and services tax (GST) would add to India’s global competitiveness in manufactured goods,” the NCAER said.

It further said that India should play a pro-active role in strengthening its trade integration with other Asian nations.

“India’s trade and investment relations with Asia will play a major role in boosting its exports in the Asian century,” the study said.

Also, India should strengthen its bilateral agreements and help bring about foreign trade agreements in groupings such as ASEAN+6 nations, it added.

The six countries outside ASEAN are Australia, China, India, Japan, South Korea and New Zealand.

(This article was published on June 16, 2013)
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