Once one of the darlings of the BRICs, the world's largest capitalist democracy is now nothing more than a "gasping elephant", HSBC said in a new report.
For a nation of 1.2 billion, India's GDP grew at just 5.3% in the first quarter, a 9 year low. Over the last 12 months, GDP growth was 6.5%, lower than it was in 2009, when the Indian economy grew at 6.7%. Economists estimate that for people to move into the middle classes, Indian GDP needs to grow over 7% annually. India is the poorest of the big four emerging markets,with per capita GDP at around $2,000, three times less than China's, according to the World Bank.
The government is largely to blame for India's slowdown. Politicians are scrambling to cover themselves from corruption charges and allegations. The nation, once celebratory as recent as 2009, is now hanging its head low.
"With policy paralysis not likely to ease any time soon...India may have to settle for sub-par growth and elevated inflation over the next couple of years," HSBC said in a report.
Credit Suisse also criticized the government, saying, the fall in GDP growth "will inevitably send shivers down the spines of senior coalition politicians, who will no doubt be heaping pressure on the Reserve Bank to react and react aggressively."
India's currency is down 5.91% against the dollar year to date. Now one dollar is equal to 56.08 rupees. The trading range was in the 40s for much of the year. India is also running a current account deficit at 4% of GDP, dishing out more money than it is taking in. The election year has led to stalled reforms, and a weak world economy has just made matters worse for India. Some are asking if India was heading for a 1991-style crisis.
"We are a much better and more resilient economy than we were in 1991," Jamal Mecklai, chief executive of Mecklai Financial, a foreign exchange risk consulting firm, told The Economic Times of India this week.
See: India GDP At 5.3% Has Gov't Seeking Corrective Actions -- The Economic Times
