Constraints on INDIA's growth-rate...

INDIA today has emerged as an oasis of growth and investment among the economies of the world when others are facing a tough situation due to weak growth and incomes because of weak domestic economy and exports. It is mainly an importer therefore lower prices have helped contain the inflation and exchange rate owing to favourable oil prices, but unfavourable weather conditions have restrained the economy from lowering interest rate further after a surprise 50 bps cut by the RBI Governor. The RBI has set a target of 5-percent inflation by Jan 2017, but the existing rate of CPI at 5.61-percent is above the target by more than a half-percent. The CPI inflation has actually increased in the recent months on the account of rising food prices and to some length to higher duty on petrol and diesel. The government has tried to improve the fiscal situation by duty hikes but probably this step has failed the disinflation to run to a higher degree. The government has increased petrol and diesel duty by around 10 Rs which probably could be sufficient to lower inflation to the target by the next year. Lower oil prices have already helped improve the subsidy picture and are likely to touch new bottom before lower global demand push them far, but the government might resist any further duty hikes to avoid missing the inflation target. Oil prices also play an important role in the overall price index through transport prices. Lower transport cost would make the economy competitive. This same is also true of for food prices because they help contain wage cost. Both, food and fuel are a major part of a layman’s basket of consumption. However, food inflation mainly comes from weather problems, droughts and floods, and also from the lack of irrigation facilities. But, it is still an irony that we face drought every year despite of floods every year too. We need to channelize flood water to drought hit areas which needs massive investment in dams and irrigation. Our Late Former President of INDIA Dr APJ Abdul Kalam was a visionary to propose linking rivers to improve the irrigation and agricultural landscape. INDIA faces floods every year in a big part which could be mobilized for irrigation if we build dams on rivers that are flooded every year. The dams’ water might be used for irrigation and for electricity generation, too. Electricity is also a big constraint on INDIA’s growth rate...