CURRENT SCENARIO OF INDIAN ECONOMY

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.