As usual, when the U.S., the world’s largest market, sneezes the rest of the world catches a cold!
India is only following that dictum. When Ben Bernanke announced rollback of QE spending some time back the emerging economies like India were hit by a tsunami – overseas investments flew, markets collapsed, currencies lost and governments went into a huddle. With rollback being deferred for some time, things are back to normal and everyone is in a party mood.
Foreign institutional investors pumped in almost US$60 Million one single day. The market gained almost 650 points and closed at a 3-year high. But for how long? This is just a temporary reprieve. For the economy to get back into growth mode and the GDP to go back to 8% of a few years ago, some tough decisions need to be taken election year notwithstanding.
Economic reforms and rolling back subsidies are imperatives. Especially fuel subsidies as that is bound to affect the disposal income of the less privileged who are already struggling, plus it will also lead to higher prices as most of the commodities are transported by road or rail, which consume diesel. But the bullet has to be bitten if the economy has to revive and fiscal deficit is to be reduced.
Reforms will help to boost domestic business and investor confidence. It will help to fix the fiscal deficit and current account deficit. The winter session of parliament should be wasted on political one-upmanship and the government and the opposition should come together to jointly address the issues plaguing the Indian economy and push forth legislation that will have far reaching and positive effects on the economy.
A healthy, growing economy will eventually put more money in the common man’s pocket and make India an attractive destination for foreign investors, more so for its intrinsic strength than for any extraneous reasons.