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Challenges Before Indian Economy

Published on Mar 10, 2022

By The Editorial Team

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At present, the Indian economy is faced with twin challenges namely increasing crude oil price and falling rupee. While the enhanced crude price always puts an extra burden on the state’s exchequer, devaluation of rupee is a danger sign for any economy. The problem has further been compounded with the ongoing Russia-Ukraine war, which is a severe blow on the world’s economy, which was recovering after the devastation caused by the Covid-19 pandemic. Due to the ongoing uncertainty in the market, India’s plan to raise money to wipe out the deficit by disinvesting the shares of Life Insurance Corporation (LIC) has also suffered a major setback. In the present situation, it will be very difficult for LIC to get proper prices for its shares. All in all, the situation looks grim for the Indian economy which till recently was making an impressive turnaround after contracting nearly 25 per cent when the pandemic broke out.

It may be mentioned here that for the last four months, there was no hike in petroleum prices despite the rising prices in the international market. Though the opposition had termed it an electoral ploy to woo voters, the fact remains that the government had meticulously planned to absorb the price shock so that the fiscal deficit did not cross the budgeted estimate. But now it seems impossible for the government to blunt the effect of fuel price hike as it has now touched $130 per barrel, which was in double digits before the start of the war in Europe. It seems that the government is left with no other alternatives, but to increase the price to keep the exchequer in good shape. Quite understandably, such a decision will hurt economic growth badly as whenever fuel price increases, the prices of essential commodities will also go higher, which in turn will only add to the plight of the people.

Similarly, fall of rupee against dollar is a worrying sign as that will also increase the country’s import bill. Apart from energy, India imports a lot of other items for which now the country has to pay more. This may upset the calculation of both the Union Finance Ministry and as well as the Reserve Bank of India (RBI) as it is RBI’s duty to keep price rise between two to six per cent. It appears that the task will be difficult for the apex bank as retail price rise is already touching six per cent. So, India will have to find a mechanism to keep the prices of essential commodities under control without allowing the import bill to go haywire. India’s task may become easy if the war in Europe stops right now, but that appears highly improbable as both sides are in no mood to show restraint. In such a situation, as a peace loving nation, India in alliance with like minded countries should take a united stand against war, a move which will aid not only the Indian economy but the world’s economy.