Why India is worse off today than in 2006

The Sensex, below 10,000 again, may have caught up with key economic indices that suggest India is worse off now in many ways than it was 28 months ago.
India’s benchmark stock index, the Bombay Stock Exchange’s Sensex, fell below 10,000 Friday, a level it hasn’t seen since 20 June 2006, finally catching up to macro-economic indicators that point to a rather stark conclusion: the country, and by extension, its people, are worse off now than they were 28 months ago.
The same 28 months that saw the Sensex cross the 21,000 mark had also witnessed other dramatic changes in factors affecting India’s economy and its standing as an investment for foreign companies and investors.
The prevailing sentiment in June 2006 was greed. In October 2008 it is fear supported in part by worsening economic data.
The Sensex closed at 9,975.35 on Friday. The rupee at Rs48.89. And, on Thursday, the government announced that inflation, as measured by a rise in wholesale prices was 11.44%.
In June 2006, inflation was 5.21%. And the rupee was trading at Rs46.06 to the dollar. The currency would go on a twisting ride that would see it touch Rs39 to the greenback in 2007 before threatening to touch Rs50 in recent weeks. The rupee has lost more than 19% this year, the most since 1991 when an acute balance-of-payments crisis forced the nation to pawn its gold with the International Monetary Fund to pay for imports.
And the country’s industrial growth has slid from 9.6% in June 2006 to 4.9% now.
In 2006, not too many people in India were familiar with the term subprime mortgage, or housing loans extended to people with poor credit history that were bundled into complex securities and sold, and which eventually resulted in the collapse of several US investment banks and the ongoing credit crisis across the world.
But, while politicians and bulls caught flatfooted would like to point to the US, not all of India’s ailments can be blamed on the US-led markets meltdown alone.
For instance, the country’s fiscal deficit now is Rs116,890 crore sharply above the June 2006 level of Rs77,740 crore.
Meanwhile, key economic reforms, many requiring parliamentary approval, have languished as the ruling United Progressive Alliance government lurched from one political crisis to another, the latest being a trust vote that it won on 22 July for the India-US nuclear deal.
Now, with five states going to the polls in the next two months and Lok Sabha elections scheduled to happen sometime in the first half of 2009, analysts agree that the next few months are unlikely to see a change in pace of policy making.
Despite inflation being where it is—and higher in recent months—some economists blame the Reserve Bank of India’s (RBI) tight monetary policy. As inflation soared on the back of growth and a global boom in commodity markets with the consequent increase in prices, the central bank had, until now, sought to control it.
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