The Economy is In Turmoil, Is There A Way Out?

A raft of issues both global and domestic threaten to derail the economy, posing fresh challenges to the Narendra Modi government in the run-up to the Lok Sabha elections. And a quick turnaround is not on the cards.

- M.G. Arun and Shweta Punj

Back in the last general election, in 2014, nothing helped the then prime ministerial candidate Narendra Modi more than his promise to root out corruption and bring a troubled economy—derailed by the ‘policy paralysis’ in the second edition of the UPA government—back on track. With just months to go before the next general elections, the economy, ironically, is occupying centre stage again. There’s distress and uncertainty, triggered by a host of global factors, and, yes, some policy manoeuvres and misadventures too. The short-lived optimism in some quarters, as GDP growth ticked past 8 per cent in the first quarter of the current fiscal, is all but gone.

Rising oil prices and a widening current account deficit (CAD), where the value of imports is higher than that of exports, have weakened the Indian rupee by 14 per cent this calendar year, and it’s being pushed down further. High fuel prices are threatening to stoke inflation, forcing a wary central bank to resort to a ‘calibrated tightening’ of the monetary policy. Stock market indices, quick to react to news, good or bad, have been on a losing streak, as foreign investors pull out of Indian stocks, with global worries and a weak rupee hitting local returns. Five days of market turmoil in late September wiped out Rs 8.47 lakh crore in investor wealth, while another Rs 4 lakh crore was lost in the first five minutes of the trading session at the Bombay Stock Exchange on October 11. V.V. Viju, 40, a Mumbai-based investor in the stock market, says he has been so bruised by the recent bloodbath in the markets that he plans to keep away from investments for a while. “The Sensex has fallen over 10 per cent since August 28 this year, and analysts predict more turmoil,” he says. “This looks like a long-term depression, so it’s better to exit and be back when the revival returns.”