Biggest Threats to India's Sinking Economy

5. Global economy and Liquidity crisis

Investors are not feeling confident enough to take risks in the face of Global Economic crisis. RBI, however, insists that to bring back economic equilibrium and to keep inflation under control, investment is an utter necessity. The diminishing Indian foreign currency reserves due to global economic crisis leads to liquidity crisis which in turn triggers inflation. Other factors propelling inflation are minimum support price and steady increment.

6. Balance of Payment crisis

Many view the current economic crisis as similar to the 1991 balance of payment crisis. But on examining the different aspects of the Indian economy in 1991, one could say that India was in a better position during the BOP crisis. The country did not have capital account convertibility which was the main cause of heavy cash outflows of the Southeast Asian countries. The functioning of interbank foreign exchange was under control of RBI and also the domestic business saw an admirable growth due to rise in local demand. The debt to GDP and external debt was low and also the foreign currency reserves were sufficient to serve imports for almost three years.

7. Unskilled labour

Although every year about 12.8 billion people join India’s workforce, only 20 percent of that workforce is skilled. Skilled workforce is required to open new business ventures which in turn help in developing the economy. Highly trained workforce can work in foreign companies and earn India foreign currencies. Hence, the government should take measures to train the unskilled workforce and turn them into productive units of the economy.

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