A report published by the World Economic Forum highlighted the risks that the Indian Economy is facing the near future. The report was prepared by the Global Risk Network, an arm of the World Economic Forum which is composed of an unparalleled network of Industry, risk and country experts who work with Business leaders and policy makers to create a framework for assessing and prioritising existing and emerging risks to Global business over the short and long term.
The four areas of focus of the report are
* Energy Security* Agriculture and Food Security* Economic Security* National Security
Under the Energy Security the report finds that the gap between demand and supply has worsened in the last years. Energy demand increases as the population grows and the country develops; energy supply has increased at a slower pace. Over one-third of the power generated fails to reach consumers. Energy subsidy schemes discourage efficient use of energy and diminish the incentives to increase the use of clean energy sources. The report further adds that the production of crude oil has been stagnant and has boosted the dependency on crude oil imports. India imports more than 70% of its oil. The government has initiated several policies to cover the increasing demand and has intensified foreign relations with world energy suppliers in South and Central Asia, Russia and the Middle East. Energy supply is vulnerable to geopolitical tensions with energy suppliers and energy transit countries. Increasing consumption and increases in oil price would add more pressure to the current account deficit. Corporations and society at large are willing to increase their energy bill to benefit from a reliable energy supply, but generation and distribution infrastructures need to be in place and extraordinary investment is required. According to the World Bank, transmission and distribution losses account for 27% of the generated power and are the highest in the world. Various government agencies report losses between 30% and 40%. Those losses are associated with technical inefficiencies and mismanagement.
Liquid petroleum gas (LPG) subsidies in India are widespread; US$ 1.7 billion was spent in the first half of the current financial year on supplying fuel to poorer households. Nearly 40% of the subsidy expenses benefit only 7% of the population. Energy subsidies encourage consumption and waste, which generate harmful effects on the environment and represent an important liability to the government budget.
Under the Agriculture and Food Security concerns, the report dwells on how rural populations are highly dependent on agriculture and pressures are increasing to transform agricultural activity into a sustainable economic sector. Almost 65% of India's population is directly or indirectly dependent on agriculture, although it only accounts for approximately 16% of GDP. Despite current self-sufficiency in food production, approximately 25% of India's population is malnourished and lives below the poverty line. Child malnutrition is responsible not only for 22% of India's disease burden, but also for 50% of the 2.3 million child deaths in India each year. Agricultural output and rural communities face risks of changing weather patterns linked to climate change and threats from water scarcity and quality. Water for agricultural use currently represents 92% of renewable water resources, compared with 3% for industry and 5% for domestic use. The report identifies the major risk involved in the Indian Agriculture which is the biggest shift in the agricultural sector has been the move to more horticultural products. Rising demand for fruit and vegetables and shorter growing cycles, which allow several harvests a year, enable farmers to spread their risk over several crops. Horticultural produce is highly perishable and requires better storage, distribution and retail conditions. These crops also place pressure on water resources.
Under the economic security the report adds that the deterioration of the global financial Environment has affected the national economy and spillover effects on the real economy are still unfolding. India remains vulnerable to the vagaries of the world currency, commodity and financial markets. The report says that the India's dependence on capital inflows to finance its current account deficit is a Macroeconomic risk and the global crisis could generate a sharp increase in capital outflows and a reduction in the availability of finance. It could also weaken the balance sheet of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking Global growth. India has accumulated reserves of US$ 295 billion over the last years of economic expansion,providing a cushion to overcome a potentially pessimistic economic outlook. The level of reserves has decreased recently due to imports paid in US dollars, Reserve Bank intervention and equity portfolio adjustments abroad. The recent fall in commodity prices might help decelerate inflation and could thus benefit the imports bill, while also having a positive impact on reserves.
Under the National Security risks facing the nation, the report identifies the External and Internal sources of insecurity: India's security policies must address potential threats coming from outside its borders. India's security policies will need to combine economic, diplomatic and military aspects to protect Indian society and also secure energy supply and trade routes. Radical groups organized along ethnic, far left or religious lines are gaining ground, especially in disadvantaged districts. These need to be closely monitored to prevent the spread of unrest in certain regions and deter extremist attacks.
The four areas of focus of the report are
* Energy Security* Agriculture and Food Security* Economic Security* National Security
Under the Energy Security the report finds that the gap between demand and supply has worsened in the last years. Energy demand increases as the population grows and the country develops; energy supply has increased at a slower pace. Over one-third of the power generated fails to reach consumers. Energy subsidy schemes discourage efficient use of energy and diminish the incentives to increase the use of clean energy sources. The report further adds that the production of crude oil has been stagnant and has boosted the dependency on crude oil imports. India imports more than 70% of its oil. The government has initiated several policies to cover the increasing demand and has intensified foreign relations with world energy suppliers in South and Central Asia, Russia and the Middle East. Energy supply is vulnerable to geopolitical tensions with energy suppliers and energy transit countries. Increasing consumption and increases in oil price would add more pressure to the current account deficit. Corporations and society at large are willing to increase their energy bill to benefit from a reliable energy supply, but generation and distribution infrastructures need to be in place and extraordinary investment is required. According to the World Bank, transmission and distribution losses account for 27% of the generated power and are the highest in the world. Various government agencies report losses between 30% and 40%. Those losses are associated with technical inefficiencies and mismanagement.
Liquid petroleum gas (LPG) subsidies in India are widespread; US$ 1.7 billion was spent in the first half of the current financial year on supplying fuel to poorer households. Nearly 40% of the subsidy expenses benefit only 7% of the population. Energy subsidies encourage consumption and waste, which generate harmful effects on the environment and represent an important liability to the government budget.
Under the Agriculture and Food Security concerns, the report dwells on how rural populations are highly dependent on agriculture and pressures are increasing to transform agricultural activity into a sustainable economic sector. Almost 65% of India's population is directly or indirectly dependent on agriculture, although it only accounts for approximately 16% of GDP. Despite current self-sufficiency in food production, approximately 25% of India's population is malnourished and lives below the poverty line. Child malnutrition is responsible not only for 22% of India's disease burden, but also for 50% of the 2.3 million child deaths in India each year. Agricultural output and rural communities face risks of changing weather patterns linked to climate change and threats from water scarcity and quality. Water for agricultural use currently represents 92% of renewable water resources, compared with 3% for industry and 5% for domestic use. The report identifies the major risk involved in the Indian Agriculture which is the biggest shift in the agricultural sector has been the move to more horticultural products. Rising demand for fruit and vegetables and shorter growing cycles, which allow several harvests a year, enable farmers to spread their risk over several crops. Horticultural produce is highly perishable and requires better storage, distribution and retail conditions. These crops also place pressure on water resources.
Under the economic security the report adds that the deterioration of the global financial Environment has affected the national economy and spillover effects on the real economy are still unfolding. India remains vulnerable to the vagaries of the world currency, commodity and financial markets. The report says that the India's dependence on capital inflows to finance its current account deficit is a Macroeconomic risk and the global crisis could generate a sharp increase in capital outflows and a reduction in the availability of finance. It could also weaken the balance sheet of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking Global growth. India has accumulated reserves of US$ 295 billion over the last years of economic expansion,providing a cushion to overcome a potentially pessimistic economic outlook. The level of reserves has decreased recently due to imports paid in US dollars, Reserve Bank intervention and equity portfolio adjustments abroad. The recent fall in commodity prices might help decelerate inflation and could thus benefit the imports bill, while also having a positive impact on reserves.
Under the National Security risks facing the nation, the report identifies the External and Internal sources of insecurity: India's security policies must address potential threats coming from outside its borders. India's security policies will need to combine economic, diplomatic and military aspects to protect Indian society and also secure energy supply and trade routes. Radical groups organized along ethnic, far left or religious lines are gaining ground, especially in disadvantaged districts. These need to be closely monitored to prevent the spread of unrest in certain regions and deter extremist attacks.
