While Indian leaders cling on the image of a rising world power, the rest of the world is disillusioned and surprised by the sudden downturn of a market that economists once praised and held up. However, the economists were not necessarily wrong. So then why has the rupee plummeted to the status of Asia’s worst performing currency?
India was once a shining example of an emerging market and an enthusiastic investor’s dream. Recently, Fitch and S&P, 2 global rating agencies, lowered India’s credit rating as the rupee continues to decline into an abyss. Investors, entrepreneurs, and citizens ask themselves what happened in such a short time to transform a rapidly growing country full of potential into an economic and political train wreck. The main issue at hand is a stagnating ‘democracy’ controlled by a small group of people with a lot of power. The Congress party, currently in power in India, has cleverly positioned allies throughout the entire system. Anti-corruption factions gaining popularity in India often question Prime Minister Manmohan Singh’s motives. However, even if Mr. Singh wanted to enact meaningful reform, the all-powerful Congress party would challenge him at every corner. The coalition politics currently reigning in the Indian government are far too complex for even simple reform to be enacted anytime soon. Unless radical political change occurs in a short period of time, India is doomed to its current state.
So the question remains: What must India do to extricate itself from its current situation? The answer lies in political unity. India’s current political system is disjointed, with many small parties taking all kinds of different positions on the political spectrum. But while India’s parties are multifarious, the citizens’ main goals should be in accord- to implement positive reform from the top down. Corruption manifests itself in this manner, plaguing the top members of the government and trickling down all the way to local officials and even law enforcement, an arm of the government rarely taken seriously in India. Although not many desirable candidates currently exist for the position of prime minister, power rests with the voters.
Once there is a fundamental overturn of the main players in India’s currently static government, dynamic reform can start to take place. One such pertinent reform is opening up sectors such as retail, education, and defense to foreign investment. Prime Minister Singh announced his plans earlier to open up retail to foreign investment. The opposition turned the story around, making it seem like the powerful global corporations would victimize Indian small business. Instead of fighting for the cause of progress, Prime Minister Singh backed down, discouraged by the criticism. What he and so many other politicians fail to realize is that India can still hold on to its culture, roots, and ways of business while adapting to the changing global economy. India has something different to contribute to the rest of the world, a well-educated workforce and an abundance of raw materials. Closing off foreign investment means that India isn’t even giving itself a fighting chance against its rising competitors.
Now more than ever, India needs foreign investors to invigorate its economy and give its currency a step up. Another area of importance is India’s balance of payments. Deficit is spiraling out of control and inflation remains high. While the Reserve Bank of India is attempting to intervene in the current situation, India’s problems cannot be solved with temporary ‘quick fixes’. Its problems are deeply structural.
With just two or three strategically placed reforms, the Indian government can get its country’s economy back on track. At some point, major alteration to the Indian system of government needs to occur in order to counter corruption, and such change is inevitable for the country. But until then, voters and politicians alike must act to quickly turn around its free falling economy by simply making some kind of united decision. The solution is much simpler than it appears.
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