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Monday, July 18, 2005

Bad news for Indian economy: Falling Rupee and widening trade deficit

This bad news came at a time when the Indian prime minister is visiting America. Indian Prime Minister Manmohan Singh is visiting America not only for lobbying for a permanent seat in the U.N. security council for India but also he is eager to expand the economic ties between the two countries. His visit may have been a very successful one but in the domestic front, the news of trade deficit becoming almost double in the April June quarter was surely a very upsetting one.
Two factors have been blamed behind this growing trade deficit: the increase in price of crude oil and growing demands for foreign goods in the domestic market. During this quarter, export income of India increased by 20% but import expenses grew by 38%. As a result, trade deficit has become double in the last quarter. At the end of this article, some links have been provided and if you like to know about the story in details you can read them. I just like to give my own opinion about this matter here.
These days, in the western countries many professionals especially in the information technology sector are scared of their jobs being outsourced to India. I do not need to explain in details about the reasons behind outsourcing, as almost all of you are familiar about this matter. Because of outsourcing and strong performance of Indian companies, export has increased quite significantly in the April to June quarter. This increase in exports is likely to continue for the near future. Increasing GDP and export income have resulted into greater demand of goods and services. If you look at the Indian television channels then you can easily notice the flooding of imported goods in the Indian market, which was closed to foreign companies for many years in the past. Indian people are getting addicted to consumerism like the western people. Many of them want to have imported goods whether they are cheap or expensive. For the multinational companies, India has become a very lucrative market and perhaps the fastest growing market in the world after China. As a result, many foreign companies are setting up their factories in different Indian cities. Many more companies are trying to market their products in a country with a population of more than 1 billion. India embraced free market economy nearly fourteen years ago. Therefore, the government can do little to rein in when importing expenses become too much. Since, the middle class is flourishing with thousands of jobs coming to India from European and American companies, the life of standard of the middle class people is improving and the demand for foreign goods is rising all the time.
The bad thing with Indian economy is that the development that is taking place in this country is highly imbalanced. This development is often limited to some large cities and the vast number of people living in the rural areas are out of touch. The condition of the rural people is improving at a very slow rate. This figure of trade deficit means that the Indian government will not be able to invest more on improving the condition of the rural people. It is interesting to observe whether the Indian government can bring the nation out of this trend among the people to use imported goods. Perhaps, the biggest challenge for the Indian economy is to maintain a balance in the highly imbalanced development between the cities and the villages.

The links
http://asia.news.yahoo.com/050718/3/244kz.html
http://asia.news.yahoo.com/050718/ap/d8bdqoc80.html
http://www.newsday.com/business/nationworld/wire/sns-ap-india-trade,0,7609531.story?coll=sns-ap-business-headlines
http://www.forbes.com/business/businesstech/feeds/ap/2005/07/18/ap2142889.html

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