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In India, the effects of an economic slow down are becoming evident everywhere. The stock markets are down. Real estate prices have been down even longer. Inflationary spike persists and people have to pay more for their daily consumption.
Fuel prices have been shooting up, even as the Government tries to subsidise diesel, kerosene and cooking gas. The current account deficit is bloating partly on account of huge subsidy burden. Foreign investors have been sitting on the sidelines, evaluating which way the Indian economy will turn.
This had been the case with most of Asia. But while the rest of Asia seems to be waking up to the challenge, India is still struggling.
In the following exercise we will try and evaluate some of the external vulnerabilities which have been rampant among Asian nations at large. On most counts, India seems to be faring poorly compared to other Asian nations. And the signals are emerging from everywhere.
Current account deficit
India's current account deficit has widened to alarming levels. Singapore has a positive current account balance of over 20 per cent. For Hong Kong it was a positive balance of 7 per cent while for South Korea it was 3.8 per cent.
India was in league with Japan, both having a current account deficit of 3.8 per cent. But these are two disparate economies and no meaningful comparisons can be drawn as Japan is a developed economy.
The pace of growth had slowed down and it has been on the brink of recession for quite a while now. Comparing India with Japan is not a fruitful exercise. China recorded a positive current account balance of 2.7 per cent. It has been able to combat the global contagion far better than India.
Similar is the case with Indonesia which recorded a nominal current account deficit of 0.4 per cent. India seems to be the worst performing nation among the list of seven Asian countries as far as current account deficit.
External debt as a percentage of GDP is another vulnerability. Countries like Hong Kong and Singapore have built their economic edifice based on foreign investment and their external debt cannot be compared with a country like India.
But comparisons are possible with China and Indonesia which can be clubbed as emerging nations like India. The external debt of China as a percentage of GDP is just bout half of that of India. But for Indonesia, it was at a more comparable level. India does not seem to be much worse off than several of her peers as far as external debt is concerned.
Short-term debt
But as far as short-term external debt is concerned, the Indian scenario is no longer that cosy. Short-term external debt often consists of fickle money which has a propensity to fly away with the onset of any crisis. When compared with countries such as China, Korea, Indonesia and Japan, India is the worst off as far as short-term external debt is concerned.
As was to be expected, Hong Kong and Singapore have huge outstanding short-term external debt, but their economic growth model is quite different from that of India.
The amount of foreign exchange reserves to service imports is another parameter used to measure the health of an economy. India can service 6.9 month of imports from its foreign exchange reserves and ranks the lowest among countries taken for comparison.
China can service 22.3 months of its imports from its foreign exchange reserves, while Indonesia has 7.2 months. Japan can cover 17.3 months of its imports. Most of the other countries are not much different from India, indicating that India is not all that vulnerable on this score.
This was because India still has fairly significant foreign exchange reserves. But the adverse balance of trade has begun to eat into India's reserves. The soaring current account deficit is dissuading the flow of foreign direct and portfolio investments. The investors remain wary and restive.
The slow down in foreign investment has eroded the strength of the rupee. It has fallen sharply against the dollar. Imports are becoming costlier and could further erode India's foreign exchange reserves.
We may not be repeating to the 1991 economic crisis in a hurry, when the country had only $1 billion in reserve, enough to meet just couple of months' import bill. But, sure enough, it is time the country exercised caution and re-furbished its economic image.
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