India's financial situation not bad as 1991: Report

India's once booming economy is sliding into a deep slump, but not as bad as 1991, when the country was facing a financial crisis and had to pledge its gold reserves for an emergency loan.

According to the New York Times, the country grew just 4.4 percent in the second quarter, a far cry from the 7.7 percent average for the past decade.

The report said that the Indian currency, the rupee, has tumbled 16 percent against the US dollar in the last three months. And analysts expect things to get even worse in the coming months.

Like Indonesia, Brazil and other developing countries, India has been hurt as investors have moved money to the United States to take advantage of the prospect of higher interest rates, the report said.

But most of India's biggest problems such as high inflation, which was nearly 5.8 percent in July and has been rising partly because of the falling rupee have domestic causes, it added.

The editorial said that until the coalition government led by Prime Minister Manmohan Singh reforms the country's economy, India will fall far short of its potential.

During the global financial boom of the mid-2000s, investors indiscriminately dumped cash into fast-growing countries and India's shortcomings were easily overlooked.

The financial crisis forced investors to pay more attention to fundamental problems in emerging markets.

According to the report, analysts and business executives have said the country has become even less hospitable in recent years.

In the nine years that the coalition government has been in power, several ministers have resigned in corruption scandals; large infrastructure projects have been delayed by mismanagement; the government's budget deficit has ballooned, thanks to wasteful spending like subsidies for diesel fuel; and politics have thwarted reforms in labor and education, the report added.

Singh has been an ineffectual leader without much authority. The real power is held by his political patron, Sonia Gandhi, who leads the Indian National Congress Party, which has expressed little concern for the country's ailing economy, the report said.

According to the report, most analysts said Gandhi and Singh will not make politically difficult changes, like privatizing bloated state-owned enterprises or easing counterproductive regulations and delays on public infrastructure projects, until after national elections next year.

As the economy slows, India's poor suffer most. Many have lost jobs in hard-hit sectors like construction and manufacturing.

The new governor of India's central bank, Raghuram Rajan, a respected economist, can also help by pushing through delayed reforms to make the country's financial industry more competitive by, for instance, granting licenses to new banks, the report said.

In 1991, when the country was facing a financial crisis and had to pledge its gold reserves for an emergency loan, the Indian government pushed through landmark economic reforms like freeing businesses to produce as much as they wanted without seeking government approval.

The situation is not as dire today, but the country needs solutions that are just as far-reaching, the report concluded.