The government of India has no reason to the complacent about the GDP growth rate in India in the fourth quarter of 2011- 12. It fell to 5.3% which pulled down the growth rate for the year to 6.5%. It is the worst growth story in nine years. At the same time, inflation is going up. As a result, the country is facing stagflation. Recovery may not be easy. What is a pity is that the government has ignored warning signals. There has been talk of Greece, rainfall, speculation and financial markets creating problems. The rupee has been falling sharply. Macro-economic fundamentals like inflation and fiscal deficit are threatening the economy. RBI intervention and capitals control have been resorted to. But the government has denied that things are falling apart and has not taken corrective measures.
Uncertainty has led to a sharp fall in investment growth which has dented GDP growth. Projects have been halted. Corruption has caused scandals. The finance Minister has taken policies which have aggravated the crisis. The government has taken refuge in the wholesale price index. The petroleum minister should not have been populist saying diesel,LPG and Kerosene prices will not move to the market price. How can the fiscal deficit be corrected? Steps must be taken to improve the investment climate. It is hardly beneficial for the RBI to cut interest rates. Cutting the fiscal deficit is the answer. The Indian economy has to struggle with inflation and policy uncertainly which go against economic growth.