With the onset of the second decade
of the present century, the bad phase of Indian economy started where the GDP
growth rate remained below 5 percent for two consecutive years in 2012-13 and
2013-14. This consecutive low growth rate was last witnessed prior way back in
1986-87 and 1987-88. However, in the current financial years i.e. 2014-15,
Indian economy has started showing signs of recovery and is poised to overcome
the below percent growth rate witnessed for the last two years. This moderation
of growth after achieving three consecutive years of above 9 percent growth
rate between 2005-06 and 2007-08 is the fall out of failure of Indian economy
to cope with several external and internal challenges.
The
external influences include the persistent uncertainty in global outlook caused
by crisis in Euro area and general slowdown in global economy compounded by
structural constraints and inflationary pressures in domestic economy resulted
in protracted slowdown . In order to cope with the external challenges like
global slowdown, country should have adequate foreign exchange reserves, stable
exchange rate, etc.
As
of now, things have improved a little as the year 2013-14 ended with the CAD of
1.7 percent of GDP, exchange rate after plummeting to INR68 per US$ in August
2014 improved to INR 60.49 foreign exchange reserves raised to USD314.9 billion
dollars in June 2014. These developments on external account have generated
some optimism that Indian economy is now better prepared to confront the
challenges in external economy.
In
the domestic arena also, improvement is observed on fiscal front as fiscal
deficit declined from 5.7 percent of GDP in 2011-12 to 4.5 percent in 2013-14.
Much of this improvement on fiscal front is achieved by reduction in
expenditure rather than improvement in revenue. Nevertheless, the corrections
in fiscal and current account deficit augur well for macroeconomic
stabilization.
Despite the improvement in twin
deficits, some structural challenges are enumerated by Economic Survey 2013-14
which were responsible for current economic slowdown in India –
- Difficulties in taking quick decisions on project
proposals have affected the ease of doing business. This has resulted in
project delays and insufficient complementary decisions.
- Ill-targeted subsidies cramp the fiscal space for
public investment and distort allocation of resources.
- Low manufacturing base, especially of capital goods and
low value addition in manufacturing. Manufacturing growth and exports
could be facilitated with simplified procedures, easy credit and reduced
transaction cost.
- Presence of large informal sector and inadequate labour
absorption in the formal sector. Absence of required skills is considered
as an important reason.
- Sustaining high economic growth is difficult without
robust agriculture growth. Low agricultural productivity is hampering the
economic turnaround.
- Issued related to significant presence of
intermediaries in different tiers of marketing, shortage of storage and
processing infrastructure, interstate movement of agriculture produce
needed to be addressed.
Other challenges faced by Indian
economy which hamper the movement towards higher growth trajectory includes
energy, infrastructure, growth inequalities, policy paralysis, slow employment
growth, disappointing manufacturing sector growth, slowdown in services
particularly internal trade transport and storage etc.
India is expected to grow by 6.4% in
2015 as per the World Bank's assessment.
