The government has even ignored the caution of the Prime Minister's own Advisory Council that it should now set “a clear time table for “exit strategy” for a series of stimulus measures since last year to bail private business out of recession. The fact, however, is that under the pressure of USA, the UPA government is trying to fulfill its obligations as a member of the G-20 set up by G-7 led by the USA. This calls for giving priority to the revival of the economies of G-7, in particular, to bail out the developed countries in particular, than safeguard the pro-people development of Indian economy and society. This position has been made clear by the International Monetary Fund.

The IMF, in an attempt to cajole China, India and Indonesia in Asia region has praised, in particular, China for its 9 per cent, India for 6.4 per cent growth in 2010 as against only about 3 per cent in the developed countries. For recovery to be sustained, it has argued, more broad-based, “re-balancing of the global economy is necessary”.

The position of India in this context is very fragile. Inclusive of oil, fertilizer subsidies, local government subsidies and its increasing security concerns, the fiscal deficit of India has risen close to around nine to ten per cent of GDP. This is unprecedented in the emerging market, such as Brazil, Indonesia, Turkey, Argentina or China which have much lower deficits. India too has a debt to GDP ratio of 90 per cent, while most other emerging economies, including all its competitors in Asia have managed to keep it well below the 50 per cent mark. If and when the global economy picks up in two to three years, India will really have to deal with the fiscal and foreign debt issue from a position of weakness. It would be the height of irresponsibility on the part of its political leadership if it fails to bring back the fiscal deficit to 3.5 to 4.00 per cent of GDP and also reduce its foreign debt burden.

As long as Indian economy kept growing for about 4 years at a high rate, its fiscal problem did not bite. But since its growth rate slowed down from 2007, fiscal deficit has become an issue in the revival of its economy. Since India has a huge external debt, it is bound to be subject to pressures on its financial system. This means that the banks would not be able to lend as much for domestic investment, which is already going down. Some among the Indian big business have also gone for large external commercial loans and brought more fragility to the domestic business enterprise. They have already been forced to take more risky strategies to fund themselves.

According to RBI's report on trend and progress of banking India, the growth rate of loans and advances of commercial banks, which was as high as 33.2 per cent in March-end, 2005, has been witnessing a slowdown since then. The growth rate decelerated to 21.2 per cent as at end - March 2009 from 25.0 per cent in the previous year. Slipping well below the target of 20 per cent in 2009-10, growth in bank credit dipped below 10 per cent during the period ended October 23, 2009. Several factors have contributed to the slowdown in non-food bank credit. The overall credit demand from the manufacturing sector slowed down, reflecting a decline in commodity prices and drawdown of inventories.

As for the stock markets, they may have delivered handsome returns in the past six months but many equity oriented mutual funds (MFs) are yet to recover their lost ground. Nearly two in three diversified equity MF has given negative returns the two-year period up to October 14 of 2009. Overseas borrowings of Indian companies grew to $1.51 billion in September this year, a rise of 38 per cent reflecting domestic demand in India and better availability of credit abroad. On a quarterly basis, the funds raised internationally increased by 70 per cent in the September quarter to $4.61 billion from $2.71 billion registered in the June quarter, according to the data released by the Reserve Bank of India.

The investment pattern of Dalal Street investors clearly shows that individual domestic investors have failed to take advantage of the bull rally that led to the Sensex gaining 73.5 per cent in 2009. Institutions - mainly domestic institutions have been accumulating stocks while smaller investors have been exiting from the stock market investment. Foreign institutional investors (FIIs) and domestic financial institutions (FIs) together made net investments of Rs 36,700 crore in the secondary market (excluding initial public offers, American / global depositary receipt inflows and qualified institutional placements) in 2009 so far.

Meanwhile, Indian business associations and experts have predicted that the WPI inflation could accelerate to 10 per cent by 2010 March end because of the rising prices of manufacturing inputs and primary articles, especially food articles.

The build up in WPI inflation during the current financial year so far (28 March - 10 October 2009) is recorded at 5.95 per cent. The strong build-up in inflation has, however, been in the category of primary articles. Although the weekly inflation for primary articles was predicted to be at 8.61 per cent for the week ending 10 October, it has turned out in fact to be 13 per cent on 28 March. Assocham has said inflation could skyrocket in the coming months in the global economy primarily because of low base and sharp rise in the prices of raw materials. The prices of aluminum have increased almost 23 per cent; while crude oil prices have surged nearly 10 per cent, the prices of copper have skyrocketed about 111 per cent.

The economic growth in India slowed down to six per cent from nine per cent in 2007-08. Industrial production index also went down. But corporate profits have still been expending. This is thanks to cost-cutting measures which means above all labour costs and fall in interests rate. Net profits of 2,900 Indian companies rose by 8.85 per cent in the first quarter as against the 4.19 per cent rise in the same period of last year. But demand in the market is still sluggish because of its narrow social base. This is evident from falling sales turnover of companies.

The state of the Indian economy and government policy response indeed add up to Indian big business making gains as junior partners of the global monopolies the mass of the people suffering crud exploitation. While mass poverty has increased; revival of market-driven economic growth will be slow and uncertain, mass unrest and discontent are bound to be more sharp and militant. (IPA Service)