How bad governance and an elephant footed Judiciary is derailing the Indian economy...

How bad governance and an elephant footed Judiciary is derailing the Indian economy...

By all estimates India is poised to be the third biggest economy by 2050 sharing space with China and America. It is all set for a very high growth trajectory eclipsing China’s high growth rates anytime between 2015-2020. The basis of these estimates remains that India’s political landscape remains stable and policy framework remains strong. But as we are all set to board a high speed growth train, suddenly we have acquired travelling sickness (in terms of poor governance, policy logjam and slow justice). We are not in the best frame of mind to board the train. Rather the train is apprehensive to board us, lest we spoil their spick and span train with our sickness. It is thus giving us time to sort out our sickness before we are afforded an opportunity aboard the fastest economic growth train. This is one train we cannot afford to miss and this is one train we want to board with our best foot forward.

India is an emerging economy with a young population and strong economic fundamentals. Free judiciary (though the speed of justice remains a drag), democratically elected government, independent central bank and developed financial markets are the pillars of our economic growth and red tape, corruption and poor infrastructure remains the irritants in the growth process.

The question that we are answering here is how and why bad governance and elephant footed judiciary jeopardizes the good work and threatens to derail the economic growth engine?

India remains heavily dependent of foreign investment in order to sustain and increase our GDP growth rate. Currently we import more than we export, thus the current account deficit and we pay for our imports (which are more than our exports) by borrowing from abroad (foreign investment). FDI in any form is welcome as that is helping the country generate growth and thus this form of foreign investment is pro growth. Foreign investors when investing in a country look for the following parameters:

1.     High growth rates – India is currently in the high growth phase and thus investment by foreign investors in India is giving them high return on their investments.

2.       Current account deficit

3.       Fiscal and monetary policy

4.       Fiscal deficit

5.       GDP/Debt

6.       Liquidity

7.       Political Risk Premium

8.       Stability of currency

I ‘ll try and brief on parameters in the next blog.