Indian Economy 2012: A Review

Dec 30 (TruthDive) : Sluggish economy caught in a policy paralysis took its own time to come out of it. Badly mauled by inflation, Indian economy in 2012 looks to a better scenario in 2013.

January 2012, stock markets cheered as Government decided that foreign investors can directly buy stocks. Despite the fact that major economies US and Europe were down, the investors saw Indian equities as an emerging market.

Next came the decision to allow 49% FDI in aviation. Stocks of Indian airline companies rose bringing in hope for airlines running up huge losses.

Foreign investors especially from UK were unhappy with the taxation laws. Vodafone bought Hutchinson’s India for Rs 11 billion in 2007. Tax department asked Vodafone to pay around Rs 2.2 billion as taxes. The matter was dragged to courts and finally the legal battle ended in favour of Vodafone at the Supreme Court. This restored foreign investors’ confidence in Indian courts.

RBI for the first time cut only CRR instead of interest rates which showed that the apex bank was concerned about tackling inflation. Many hoped that the RBI would cut interest rates but it instead decided to ease liquidity crunch. All these measures led to Sensex rising for the first time in 18 years and rupee gaining.

Telecom industry including those owned by companies abroad suffered a jolt when Supreme Court cancelled 122 licences on charges of corruption.

For the first time, Kingfisher Airlines showed signs of closing down in February. Cracks in UPA surfaced when Congress egged TMC’s Dinesh Trivedi to hike rail fares for the first time in 8 years. Mamata Banerjee was angry and the railway minister had to quit. This led to a very cautious budget without any bold reforms despite a widening trade balance.

CAG after the 2G scam came out with another stunner that sale of coal blocks led to $211 billion loss to exchequer. A tribunal suspended Korean firm Posco’s mining licence in Orissa citing environmental reasons. $12 billion investment the biggest ever by a foreign company was put on hold. Predictably, rating agency Standard &Poor cut India’s rating from stable to negative.

Under pressure from BJP and Left, UPA put the Mauritius tax treaty under review citing $600 million loss and that it was funnelling black money back to India. This created uncertainty among foreign investors.

General anti avoidance rule (GARR) was delayed adding to woes of economy. Foreign investors moved out funds leading to sliding of rupee . Finally UPA took a difficult decision to increase price of petro products to cut the subsidy bill.

The GDP growth of last year was 9.2% but this year fell to 5.2%,the lowest in 8 years.

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