Overview of Indian Economy

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Positive signals in Indian Economy:
  1. Foreign direct Investment (FDI) in India have increased by 29 per cent during October 2014-December 2015 period post the launch of Make in India campaign
  2. India has emerged as the fastest-growing economy.
  3. Inflation has been under control for many years till recently.
  4. Central government fiscal deficit has narrowed by a third
  5. Current account deficit (CAD) has gone from 5 per cent of the GDP in 2013 to 1 per cent of GDP in 2016
  6. India’s foreign exchange reserves have rose to more than $410 billion
  7. India has rapid growth prospects due to the diversification of the country’s export base which now includes more complex sectors such as chemicals, vehicles and certain electronics
Issues in Indian Economy:
  1. Structural concern of growth
  2. Rising NPAs, Operational cost, debt to equity ratio leading to an unstable banking system
  3. Delayed monetary transmission. Until the transmission is complete further rate cuts will  be ineffective
  4. Bank branches in rural areas are generally difficult to operate due to high costs which can solved by branchless banking system in rural areas or usage of existing government infrastructure like India post or district office for providing inclusion
  5. Declining commodity prices: Many positives of it. But, all developing countries which are dependent on commodities are now in doldrums. Declining due to decrease in demand. It may have long term impact on global growth.
  6. Outflows from foreign portfolio investors have reached their highest level in 10 years. $6.7 billion was pulled out on a net basis from the domestic capital market.
Prospects/ What India should do?
  1. India need to address supply side constraints in order to achieve the potential growth rate of 9%
  2. To step up its exports
  3. Be a hub of global education
  4. Take strides in manufacturing
What are some Global Economic issues?
  • Developed countries are adopting monetary policies without consideration for the negative impact they have on the global economy
  • Emerging markets are engaging in currency intervention that sparked competitive devaluations
  • US Fed reserve monetary policy reversal
  • Slide in global commodity prices
  • Financial stress in emerging markets triggered by unexpected currency devaluation by China
  • Brexit and its impact
  • Trade wars initiated by the Donald Trump administration
  • Strengthening dollar
  • Rising crude oil price
All this led to fall in investor confidence in emerging markets and resultant flight of capital.
Positives for India due to global issues:
After these issues settles, investor will look for “the best” option available which can be India because:
  1. Economic growth in increasing
  2. Inflation is decreasing
  3. CAD and FD decreasing
  4. India is one of the few large emerging markets which has accelerated its growth.
Reason of positives:
  1. Curtailment of food inflation though structural and tactical steps like restrained adjustment to MSP, timely use of buffer stocks, and efficient alignment of food related EXIM policy
  2. Government increasing capital expenditure as private sector is still risk averse
  3. Policy mess in India’s natural resources (spectrum, mines etc.) cleared. Increased transparency and reliability.
  4. Labour reforms initiated

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