For those who lived through the 1970s and the 1980s, it was almost axiomatic that all problems in the country would be associated with the ‘foreign hand’. With this ‘hand’ not quite being defined, it was assumed that discussion or speculation would end. Today, in an era of globalisation, which has been taken to new heights by the financial crisis and then the sovereign debt crisis, the connections are stark. The foreign hand has assumed a new form which is used for explaining why things are not working. Therefore, it is not surprising that the current problems with the Indian economy have been related to global economic conditions. So much so that even inflation has been driven to the starting point of being global in nature. How far can this be justified in this way?
One may recollect that when the financial crisis took place and the emerging markets came out relatively unscathed, there was this theory of decoupling that was enunciated, which proved that these countries were different and could take charge when the developed countries did not perform. And we in India showed how good our numbers were. Now, can we really go under the umbrella of global distortions to justify our condition? The arguments here show that India is not quite the country that runs on global factors, which, though important, are more peripheral in nature. As a corollary, the basic impetus has to come from within.
Let’s look at GDP growth. Ours is a domestic-oriented economy. Agriculture is fully domestic, and while industrial growth is driven by exports, the pattern in the last 5 years shows that the ratio of exports to GDP (at current market prices) has actually increased from 14.9% in FY09 to 17.2% in the first 8 months of FY14, with the ratio being 16.3% in FY12 and FY13. This means that a global slowdown has not quite affected this ratio. We have actually diversified our export destinations away from the US and Europe to Asia and Africa to make them less vulnerable to such disturbances.
Services, again, are primarily domestic in nature, and if one looks at the share of domestic advances to total advances of our banking system, it has been constant at around 90%. This means that growth is driven mainly by domestic factors and we cannot quite blame the global slowdown for our travails.
How about inflation? Inflation in the last year has