By: Dr. Mike Campbell
India is the world’s most populace democracy. 1.2 billion people live in the Indian sub-continent making it one of the world’s largest potential markets. The GDP of India is something like $1.4 trillion, but when this is expressed on a per capita basis, the figure equates to just $3500. One in four Indians lives below the poverty line, but the nation is regarded as one of the five most important emerging (or should that be emerged?) economies; the BRICS group (Brazil, Russia, India, China and South Africa).
Despite the fact that the Reserve Bank of India has acted 13 times this year to increase interest rates in a bid to drive down inflation, it remains stubbornly high at 9.1%. This month, the Bank has left interest rates on hold because of worries about faltering economic growth.
India’s woes have been compounded by the fact that the Rupee has fallen to a series of record lows against the US Dollar. This means that the cost of imported goods has risen, driving inflation higher. Analysts think that the Bank will be forced to make a rate cut in the New Year as a means of stimulating the economy as fighting inflation becomes secondary to securing economic growth against a background of stagnating (if not falling) global demand.
In an unrelated development, the Cabinet has approved food subsidies which should guarantee cheaper food staples to half of the nation’s population and three quarters of Indians living in rural areas. The price tag for the initiative has been put at $19 billion and the project will be introduced in phases. The emergence on the world stage of the BRICS nations faces their governments with the pressing social problem that their new found wealth and influence is concentrated in the hands of a tiny minority whilst the vast majority have to endure poor living standards; a potentially explosive situation.