Globalization and investment form an integral part of most of the developed as well as developing economies. These components equip any nation with new skills and provide smooth access to markets & technology. Today, every nation across the globe is looking for foreign and overseas investors be it India, China or even US. But in the absence of signs of global recovery, will the current domestic policies be able to boost demand and investment in India is the question.
The Indian economy is unlikely to improve in the near term because of “policy stasis”. The Reserve Bank of India (RBI) said that lower interest rates alone can’t help prop up investment and put Asia’s third largest economy back on the growth path, reiterating that the government needs to embark on policy reforms and also restore fiscal discipline.
High inflation and other fiscal issue currently prevalent in our country require more active foreign exchange interventions by the RBI to stem the depreciation in Rupee and provide a more smooth operating environment to the exporters. However, limited forex reserves constrains our ability to intervene effectively and stop the depreciating rupee from hurting the industry. The high trade deficit is a pointer to this phenomenon, pushing up the current account deficit to the highest level ever.
The revenue deficit points to the poor quality of government expenditure, particularly the high subsidies, instead of undertaking expenditure that can create long-lasting assets. The revenue deficit is primarily responsible for the fall in savings and investment, as the government had to increase its borrowings to finance its high fiscal deficit. Also, the government’s loose fiscal policy has contributed to excess demand in the economy leading to sustained inflation.
It is important to appreciate as to what monetary policy can or cannot do. It can influence short-run demand in a very limited way but has strong long-run implications on inflation. It cannot bring about permanent or long-run changes in the levels of output, which are mainly driven by technology, productivity changes and fiscal policy.
The concern is whether cutting down on interest rate and policy changes will be able to attract investors because reviving growth, even with both monetary policy easing and (government’s) policy action, is going to take time.
FinNiche, The Finance Club of IMT Ghaziabad ,organizes RISCON 2012, with the purpose of discussing the impact of government’s policies on FDI, subsidies, forex management, etc, on the investment sentiment in our country. Thus, we invite you with humility to grace the occasion and help us in our endeavour to lighten up the young minds of our institute.