Have we reached the bottom of the economic down turn? Though the signals from different pointers are mixed one , but one thing is sure no visibility of any confidence built up, any trend may not start before second half of 2014.
Indian industry is in the midst of a serious downturn. The Index of Industrial Production, the lead indicator of industrial production that trends in the registered factory sector, has been on the contraction mode for a substantial long time, the recessionary trend has also affected key manufacturing sectors, mining and exploration activities.Though the steep depreciation of rupee has given some hope to export sector,but at the cost of the imbalance in imports , that has adversely affected CAD.
India, similar to many other emerging market economies, has been dependent on the liquidity, ensured by large inflows of foreign capital into the economy, and that is needed to support incremental bank lending for the economy. Though this process of liquidity infusion has not completely dried up, but recently the confidence on the future availability of such liquidity has declined remarkably. Moreover, RBI's effort to address the rupee’s decline has further sucked the rupee liquidity. This together with the increase in inflation and costly import due to the rupee depreciation has accelerated the worsening of recession tendency in the economy and also intensified the industrial downturn.
Huge current account deficit along with a weakening rupee had adversely affected investor sentiment, which resulted in turn to a decline in foreign investment in the country. So while capital flight from India was serious pointer in judging the rupee’s position and the uncertain economic environment, the country’s balance of payments position is the more fundamental weakness,and that was much ignored by delayed address mechanism on the subject.
INDIA HONEST fears , with the government already in election related populism mode, huge current fiscal deficit , that is to go up only with more subsidy promises in election year, any bright future for economic revival is too much uncertain in near time.