Indian economy Growth

Here are some pointers:

Negative points:

1. Industrial growth has slumped (October IIP number -5.1%)
2. Investor confidence has plummeted. Market has been sluggish (Market has dropped back from 20000 to 16000)
3. Government's finances have increased beyond expectation
4. Rupee has depreciated beyond control  (rupee dropped by 17%)
5. Interest rates were increased 13 times. Repo rate is now 8.5. Its is stifling the growth of indian industries.
6. There is lack of political will. New reforms on back burner. Power sector in deep trouble.
7. Indian economy is exposed to global financial troubles.

Positive points

1. Indian consuming middle class is still growing. Domestic consumption is basis of Indian growth.
2. Indian consumption story is still intact. Consumption -> investment -> industrialization -> employment and prosperity
3. Indian economy is resilient. We have faced such difficulties even before and came out of them successfully.
4. Congress view -> focus on poverty alleviation which is just 0.9%. GDP growth of 7% is also good as per  politicians. They dont feel like they or derailing or rolling back growth.

Forecasted growth rate:

RBI - 7.6%          Govt- 7.5%          Independent analysts - 7%

Balance of payments = Current account + capital account + forex reserves

Current account (fully convertible, govt cant deny converting currecy generated through these) -> related to trade in goods and services 
Capital account (not fully convertible, govt permission is required in some cases to convert the indian rupee to foriegn currency generated from these activities) -> related to investment as fdi, fii, bonds, properties etc

Current account deficit is widening. (We need to import oil, machinery from industries etc)
Capital account  inflow (FDI and FII) is same as last year or decreasing
As a result the forex reserve is depeleting with india (dropped below 300 billion $ as per latest news)
If the situation continues we can face balance of payment issues in future.

Inflation vs Growth

Reasons for Inflation in India

1. monetary expansion
2. demand side pull
3. supply side constraint

Priority will be to  balance growth and inflation. The balance may can be different compared to a developed country. RBI to find the right balance of growth and inflation itself based on various factors. India is in growing  stage and so we cannot sabotage the growth prospects. At the same time high inflation affects poor people badly and it cannot be ignored.

Inflation is a regressive tax that hurts the poor the most as their earning are not protected against rising prices. Though indian inflation cannot be connot be controlled by RBI alone (Govt is spending money like any thing and increasing fiscal deficit), controlling inflation remains to be one of its objective. Inflation of 9% is not acceptable and RBI has to step in to bring it down or stop from increasing further.

Points for reducing interest rates - Growth is necessary condition for poverty reduction. Growth translates into lower unemployment rate. In place of raising inflation fiscal prudence should be brought into place. Funds should be channelized towards developing infrastructure. There is structural inefficiency in India. There are problems in public distribution system (grains rot in warehouses thus reducing the availability in market). Indian food production is saturating, while the population is increasing. We need investment in developing irrigation facilities, building warehouses, cold storages. Govt and RBI need to think long term instead of short term.