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Ahead of elections

July 9, 2012

Amid worldwide economic crises, the Indian economy is dealing with a recession of its own. With presidential elections coming up next week, many fear populist policies will override solid policy decisions.

India's Prime Minister Manmohan Singh (C) addresses the media on the first day of the budget session in New Delhi

The construction company, "Action Construction" from New Delhi is one of the companies really feeling the recession in the Indian economy. Manager Dharamender Singhal does not have to think long choosing words to describe the dire situation his business is in at the moment.

"Order books are on the lower side, and the funds, the profits, they are not coming in. And it is basically because the money is not there."

While there have not yet been any layoffs, the amount of work has decreased - from six days per week to four or five, depending on contracts.

The customers of Singhal's company are administrative authorities, who, for example, commission the construction of roads, and private companies, some of which are large corporations like the mobile phone giant Reliance and the automotive company Tata.
Giant Indian corporations have had to drastically cut back on their investment projects. The steel giant Lakshmi Mittal even said it would have to postpone the construction of two steel mills by between five and ten years."Some of the projects have been put on hold and the government should step in now. But still, they're holding on that. If the government put money into the system, that would definitely improve things."

Corruption and red tape

The Indian government is catching heat for the recession, accused of not doing enough to curb corruption, or to simplify administrative processes, and not coming through with long-planned reforms. Critics say this is what is causing the general lack of interest among foreign investors.

And pressure continues to grow. The Indian rupee is losing value. Inflation, with rates at around nine percent, is especially hitting the poor. The government can no longer spend generously because of the state's growing deficit.

Usually Indian economic growth rates are between eight and nine percent. But now, it is only between five and six percent. Economists say that is not nearly enough to offer perspectives to the millions of people living in bitter poverty.

"The problem that's happened is that we took growth for granted and we felt that the eight percent growth would just carry on. And now that it has deserted us, people are feeling a bit lost," explains Rajiv Kumar of the Federation of Indian Chambers of Commerce. The current situation, he believes, is alarming.

Rural Indian women carry baskets on their heads
India's current growth is not offering perspectives to its poorImage: picture alliance/ZUMA Press

Currently, the Indian government is grappling with controversial reforms which have been put on hold - for example, whether the domestic market should open up to large foreign chains such as Metro, Wal Mart, or Ikea - or whether they would ruin the country's economy by putting at least 20 million small business owners out of work.

Populist policies

Ahead of presidential elections, many therefore fear that populist policies will take the lead over prudence.

"You have to disassociate politics from economics," Kumar suggests. "Let good economics not become a complete sacrifice. If we don't do that, there will be a huge regression and competitive populism will lead just nowhere at all, except to Greece, which I hope we will never become."

A roadside watchmaker fixes a watch in New Delhi, India
Some fear large chains will put small frims out of businessImage: AP

Ratings agency Standard & Poor's demands quick reforms. Not long ago, it threatened to downgrade India, making it the first emerging country to receive junk status. After much hesitation, Prime Minister Manmohan Singh has finally reacted to the threats. He announced plans to create a more business and investment-friendly environment by reducing bureaucratic obstacles.

"We hope that it will get better in the coming months. Because we have a big problem on our hands right now. We can only hope things will change," said Singhal.

Author: Jürgen Webermann, New Delhi / sb
Editor: Gregg Benzow