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Touching 14000 very soon. you can see some corrections not more.

2006-12-18 20:11:57 · answer #1 · answered by Subhrangshu m 3 · 0 0

Many economists estimate that for India to achieve an annual growth rate of 8.5 percent, it will require a yearly capital inflow of $50-$60 billion. Even this sum could be an underestimate, as Prime Minister Manmohan Singh told the 39th Annual Meeting of the Board of Governors of Asian Development Bank on May 5 that India’s infrastructure requires an investment of more than $150 billion in the next few years.

With a view to attracting foreign infrastructure investment, the UPA, like the government before it, is planning to turn over key resources, like water, and key economic sectors, like power generation, to partial or even complete private sector control and ownership.

most of the foreign capital that India has attracted in recent years has been in the form of foreign institutional investment, rather than foreign direct investment. (In 2005, the ratio was 60 to 40 percent.) While the FII inflow has enabled Indian companies to raise additional capital through new share offerings or by raising loans based on the increase in their valuation, FII investments are by definition highly liquid, as financial institutions are in the business of profiting from short-term variations in share and currency values.

India’s dependence on FII forms a marked contrast with China and Brazil, where FII investment accounted respectively for 26 percent and 30 percent of all foreign investment in 2005.

Should India’s growth rate slacken, foreign investors grow impatient with the pace of neo-liberal reform, or international market conditions deteriorate, India could, as the recent stock market gyrations have shown, be sideswiped by a sudden withdrawal of FII and consequent rupee devaluation.

An article earlier this year on the asiatimes.com web site noted that the India’s economy “faces significant risks arising from much higher international oil prices and the impact of higher energy prices on Indian inflation and global economic growth” and warned these risks could lead to the withdrawal of foreign funds from India’s equity markets.

“In the past,” continued the article, “emerging-markets investment performance that has lived by the accumulation of short-term foreign capital has also died because of sudden foreign capital flight. And India is very vulnerable to this syndrome.”

India is running a substantial current account deficit. For the April-December 2005 period, the deficit was $13.5 billion, more than double the $5.9 billion deficit incurred in the corresponding period in 2004. The main reason for the increase in the current account deficit was the ballooning of the trade deficit, which totalled $39.6 billion for the nine months between April and December 2005.

On the fiscal front, both the central and state governments in India are mired in debts with up to 40 percent of revenue set aside for debt repayment. The huge debts are a direct consequence of successive rounds of tax cuts for business and the rich. With combined central and state government debt around 9 percent of GDP, international capital is insisting public spending must be sharply reduced.

In the long run, a confluence of factors beyond the control of the Indian elite could well bring about an economic crisis similar to the one that devastated Southeast Asia in 1997-1998.

2006-12-19 03:45:40 · answer #2 · answered by Anonymous · 0 0

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2006-12-20 00:21:48 · answer #3 · answered by dinu_pawar 5 · 0 0

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