Biggest Threats to India's Sinking Economy

2. Providing food to a large population

If the Food Security Bill is made a law in India, it will only increase problems of the exchequer and add to the already swelling subsidy bill. Under this bill, the Indian Government tries to cater the need of large population by providing them grains at subsidized rates, which are actually bought at high market prices.

Although the Central Government is trying to bring down the fiscal deficit to 4.8 percent of GDP, keeping the current scenario in mind, this seems to be a farfetched dream.

The bill aims to benefit one-third of India’s population by providing the beneficiaries with 5 kg grains every month at a price of 1-3 per kg.

3. Elections are on the horizon

In an attempt to please the voters, the incumbents are expected to release few more proposals like the FBS(Free Basic Services), as elections are approaching. However, such proposals will act as a fatal blow to economy. This will also cost the country’s GDP heavily.

Although an interim budget will be announced by the government in February 2014, the investors will have to wait for a long time to invest in markets since as per laws the government can submit a vote on account before the scheduled elections only.

4. Hike in oil prices

The hike in oil price is acting like ‘fuel to fire’ for the current scenario. About 80 percent of the total oil consumed in India is imported. The falling rupee and huge oil imports has a direct impact on Current account deficit. According to the Director-Finance of Indian Oil Corporation, P.K.Goyal, the company has undergone a loss of 840 crore during the April-June quarter due to the depreciation in rupee. Further fall in rupee will accentuate the losses of oil companies since crude oil is bought at an exorbitant price.

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