The stock markets have been volatile over the last few months due to a slew of factors. Investment has softened and data is pointing to a fall in manufacturing and service-sector output.
At the same time, the current account deficit is at a record high, a persistent fiscal deficit has raised the threat of sovereign rating downgrades and the central bank's current cash-draining steps presage a rise in borrowing costs across the economy. Indeed, the 4.4 percent GDP growth in the the April-June 2013 quarter points to the stark reality of the fundamental deterioration.
The markets are also affected by the US' quantitative easing programme, strengthening of the US dollar and slowdown in China and in the developed countries.
The government has taken a slew of measures to boost exports and reduce imports to lower the trade deficit which, in turn, will reduce the current account deficit. The government is also seeking to increase capital flows to assist the financing of the current account deficit.
Economic reforms can help improve the investment climate by boosting investor sentiment. The RBI and the finance ministry need to work in tandem to revitalize the economy by drafting effective measures to boost confidence. If the government is able to push through structural reforms, this phase could probably lay the foundation for higher sustainable growth in the future. It will further propel the Indian economy in making its mark as a globally attractive destination for the financial services sector.
Once we clear these hurdles, there is no stopping India from becoming one of the most attractive markets in the world. When you are in quicksand you go down quicker if you flay your limbs wildly.
Sure, things are currently in bad shape but in every circumstance the outcomes are based on how you respond and take advantage of the situation.
By:IANS