Macroeconomics

India’s Macroshastra

December 2, 2018

Submitted to: Prof. Souvik Dhar

By

Group: H_07

Ayushi Dhall H016

Chinmay Kapadia H027
Paridhi Khandelwal H029
Saumil Lotia H033
Prasenjit Nandi H043
Jatin Vashisht H063

1|Page
Table of Contents
1.0 Introduction ..................................................................................................................................... 3
2.0 Literature Review & Analysis ........................................................................................................ 3
2.1 Macroeconomic Scenario of the Country ................................................................................. 3
2.1.1 GDP Growth ......................................................................................................................... 3
2.1.2 Inflation................................................................................................................................. 8
2.1.3 Unemployment ................................................................................................................... 12
2.1.4 IIP Data ............................................................................................................................... 13
2.1.5 PMI Data............................................................................................................................. 13
2.1.5 EPI Data .............................................................................................................................. 14
2.2 Macroeconomic Policies in the Country ................................................................................. 16
2.2.1 Monetary Policy ................................................................................................................. 16
2.2.2Fiscal Policy ......................................................................................................................... 18
2.3 India & WTO on Agricultural Subsidy .................................................................................. 20
3.0 Challenges ...................................................................................................................................... 21
4.0 Conclusion ..................................................................................................................................... 22
5.0 References ...................................................................................................................................... 23

2|Page
1.0 Introduction
India is the fastest growing economy in the world and it is expected to emerge as one of the
top three economic powers of the world over the next 10 – 15 years due to its strong
democracy, demography and partnerships. India’s fastest growth in the world accompanied
by China has also made south Asian region the fastest growing region in the world. The
economy is on rebound and is likely to achieve higher growth in the future. Moody’s
upgradation of India’s rating from Baa3 to Baa2 in recognition of Indian Government’s
reforms agenda has increased the investors’ confidence in Indian growth story. However,
alongside great opportunities for further growth, Indian economy faces significant challenges.
It has significantly overcome the shock of demonetization and it has been trying to accustom
to new GST regime. (Ganguly, 2018) (India Brand Equity Foundation, 2018) (Wright, 2017)

2.0 Literature Review & Analysis

2.1 Macroeconomic Scenario of the Country

2.1.1 GDP Growth

Indian economy showed an impressive growth with GDP growth rate of 8.2 % in first quarter
of FY2018 backed by strong core performance and healthy base.

Manufacturing sector and consumer spending have contributed the most to this number.
Indian government changed the base year for calculating the GDP growth rate from 2004-
05 to 2011-12 to make it more current by changing goods and services in the basket. GDP
is set as 100 for the base year and with reference to that the GDP growth rate is calculated.
Any year can serve as a base year. Indian government and the statistics ministry is also
thinking to change the base year from 2011-12 to 2017-18 to calculate GDP growth and IIP

3|Page
numbers. By doing this, government wants to accommodate and factor in all the economic
reforms that take place in the current economic scenario and to make it more current. (The
Economic Times, 2018)

So, since the first quarter of FY17, this is the highest GDP growth rate. Electricity,
manufacturing, gas, water supply and other utility services, defence and other utility services,
construction and public administration and other services have registered more than 7 %
growth. (Business Line, 2018)

Agriculture

Mining

4|Page
Manufacturing

Electricity

Construction

5|Page
 Trade, Hotels

Financing

Public Administration & Defence

6|Page
 TOTAL

‘The mining and quarrying’, ‘agriculture, forestry and fishing’, ‘financial, real estate and
professional services’, ‘Trade, hotels, transport, communication and services related to
broadcasting’ have registered 0.1 percent, 5.3 percent, , 6.5 percent, and 6.7 percent growth
rate respectively during this period. At current prices, GDP is estimated at Rs 44.33 lakh
crore in Q1 FY19, against Rs 38.97 lakh crore in Q1 FY18. Thus it has shown a growth rate
of 13.8 percent.

These figures are much better than those estimated by the economists. Indian economy of
$2.6 trillion has surpassed the France’s economy and has emerged as the world’s sixth largest
economy.

Comparative Analysis of India & China GDP Growth

7|Page
As per World Bank, it will surpass United Kingdom’s economy in the near future. In
comparison, $13 trillion Chinese economy has shown 6.7 percent growth for June quarter
compared with 6.8 percent in March quarter. According to the statement by Minister of State
for Statistics, Vijay Goel, the per capita income witnessed the growth of 4.6% to Rs 68,572,
6.2% to Rs 72,805, 6.9% to Rs 94,130, 10.3% to Rs 1,03,870 in 2013-14, 2014-15, 2015-16
and 2016-17 respectively. In Q1FY19, it stood at Rs 1,12,835 with growth of 8.6%. (Kadam,
2018)

It can be seen from the data depicted in the figure above that although India has emerged as
the fastest growing economy in the world, per capita income which shows the dynamics of
the well being of the citizen, is very low compared to China and the USA. Hence, India has to
grow at 9-10% to create enough jobs and to increase per capita income for next 20-25 years
according to consensus. India is also planning for the sustainable growth. It expects to
generate 40% of its energy by green fuel from renewable sources. (Business Today, 2018)

2.1.2 Inflation
Any success doesn’t come without any risk or sacrifice. India has witnessed high growth on
many fronts. However, this growth has come with higher risk of inflation. Inflation is the
increase in goods and services’ prices over a certain period of time while deflation is a
decrease in these prices. Inflation is a crucial indicator for a country’s economy. Inflation
impacts the standard of living of citizen of any country and it influences the cost of savings
and mortgage and also alleviates the effect of the state pensions and other benefits.

8|Page
Retail inflation which is measured by Consumer Price Index (CPI) has risen to 3.77% in
September, 2018 as against 3.69% in previous month and 3.28% during the same period last
year. The numbers have started rising due to higher food and fuel prices. However, rises in
imported goods due to depreciating rupee has been cancelled out by slower inflation in food
prices which constitutes nearly half of India's consumer price index (CPI). During the same
period, Consumer Food Price Index (CFPI) of India has inched up 0.51% compared to 0.29%
in August, 2018 and 1.25% in September, 2017. The Base Year of the Consumer Price Index
(CPI) has also been revised by Central Statistics Office (CSO), Ministry of Statistics and
Programme Implementation from 2010 (=100) to 2012 (=100) with effect from January 2015.
(Webteam, 2018) (The Statistics Portal, n.d.)

The food and beverage inflation was 1.08% while tobacco and intoxicant inflation was at
5.57%. Clothing and footwear inflation stood at 4.64%, housing inflation stood at 7.07%, fuel
& light was at 8.47% during September. It can be seen from the figure that inflation in
October 2017 was the lowest due to the effect of demonetization and GST implementation.
Inflation of miscellaneous category which represents items like health, household goods and
services, recreation and amusement, transport and communication, personal care, education
and effects etc was 5.65% during September. CPI numbers are better than expected by
economists.

9|Page
Wholesale Price Index (WPI) stood at 5.13% (provisional) during September, 2018 as
compared to 4.53% during August and 3.14% during September, 2017. Manufactured
products’ cost increased 4.22%, compared to 4.43% rise in August, while fuel and power’s
cost went up 16.65%, compared to a 17.73% during a month earlier. Inflation for Primary
articles was at 2.97% against -0.15% in August. Inflation of some of the food articles i.e.
paddy, milk and oilseeds declined whereas inflation of cereals, wheat and potato increased to
5.54%, 8.87% and 8.13%, respectively. Wholesale prices for onions, eggs and meat have also
declined during the same period.

The core inflation which excludes volatile food and fuel prices was at 5.8% in September
from 6% in August. The CPI target for Q2FY19 has been lowered by RBI at 4.0%, for
H2FY19 at 3.9-4.5% and for Q1FY20 at 4.8% with some upside risk. (Suneja, 2018)

Indicators 2013 2014 2015 2016 2017

Population (million) 1,250 1,266 1,283 1,300 1,317

GDP per capita (USD) 1,488 1,614 1,632 1,750 1,979

GDP (USD Billion) 1,859 2,044 2,094 2,275 2,607

Economic Growth (GDP, % Annual Variation) 6.4 7.4 8.2 7.1 -

Consumption (% Annual Variation) 7.3 6.4 7.4 7.3 -

Investment (% Annual Variation) 1.6 2.6 5.2 10.1 -

10 | P a g e
 Industrial Production (% Annual Variation) 3.3 4.1 3.4 4.5 4.3

Public Debt (% of GDP) 68.5 67.8 69.6 68.9 70.2

Money (% Annual Variation) 12.3 10.7 11.5 6.3 21.9

Inflation Rate (CPI, % Annual Variation, EOP) 8.2 5.3 4.8 3.9 4.3

Inflation Rate (CPI, % Annual Variation) 10.0 6.0 4.9 4.5 3.6

Inflation (PPI, % Annual Variation) 5.2 1.3 -3.6 1.8 2.9

Policy Interest Rate (%) 8.00 7.50 6.75 6.25 6.00

Stock Market (% Annual Variation) 18.9 24.9 -9.4 16.9 11.3

Exchange Rate (vs USD) 60.02 62.29 66.25 64.86 65.11

Exchange Rate (vs USD, AOP) 60.42 61.14 65.42 67.04 64.46

Current Account (% of GDP) -1.8 -1.4 -1.1 -0.7 -1.9

Current Account Balance (USD billion) -32.8 -27.6 -22.1 -15.2 -48.7

- - - -
Trade Balance (USD billion) -136.6
137.5 117.2 109.0 157.0

Exports (USD billion) 314 311 262 275 303

Imports (USD billion) 451 448 379 384 460

Exports (% Annual Variation) 4.6 -1.2 -15.6 5.1 10.0

Imports (% Annual Variation) -8.0 -0.6 -15.4 1.3 19.7

International Reserves (USD) 304 341 356 373 421

External Debt (% of GDP) 24.0 23.2 23.2 20.7 -

Source: (India Economic Outlook, 2018)

Indian economy grew at 6.7% in 2017 and it is expected to grow at 7.3% in 2018 and 7.4% in
2019. While in China, growth is expected to slow down to 6.6% and 6.2% in 2018 and 2019
respectively from 6.9% in 2019. IMF’s forecast came little lower than what World Economic
Outlook (WOE) had given in April 2018 for 2019 given the current condition of crude oil
prices and tightening of global financial condition. This forecast was backed by the factors of
robust investment and consumption pattern in the country, GST implementation and currency
exchange initiative. High investment also in stock market can be seen from the fact that even
due to high FII selling in the stock market stock market didn’t crash as was seen in 2013
when the same level of FII selling was seen. This happened because FII selling was absorbed
by domestic investment inflow to the great extent.

11 | P a g e
The important reforms were implemented like GST, IBC, RBI’s inflation-centred framework,
steps for liberalizing foreign investment and efforts to make easier to do business. Reforms
related to labours and lands will be crucial in future. Improvement in liquidity for credit,
cleaning up bank’s NPAs problem and corporate’s balance sheets, resolving governance
problems of PSBs should be the priorities for Indian economy. Higher interest rate, rising
debt, higher yield and hence lower profitability are the matters of concern overall. Achieving
lower Fiscal Deficit by lowering subsidies and more compliance with GST should also be
focused on. Inflation is also expected to be at 3.6% and 4.7% in 2017/18 and 2018/19
respectively against 4.5% in 2016.17. (Bureau, 2018) (Real GDP growth, n.d.)

2.1.3 Unemployment
Although Indian economy has witnessed high GDP growth rate, high IIP date, high PMI
numbers, it has not got the success in converting these numbers into high employment rate or
low unemployment rate. According to Centre for Monitoring Indian Economy,
unemployment rate rose to 6.9%, the highest in two years. And according to CMIE, the
labour participation rate fell to 42.4% the lowest since January 2016. The labour participation
rate is a measure of the proportion of adults willing to work.

All these have fell sharply after demonetization and have not recovered since after that. The
number of employed persons in October 2018 was at 397 million which was 2.4% lower than
407 million in October 2017. This sharp fall in employed labours is the matter of concern for
Indian economy. According to CMIE data, the number of unemployed persons actively
looking for jobs rose almost two times to 29.5 million in October 2018 against the low of 14
million of July 2017.

The most worrisome matter is that the job creation has not supported the number of labours
entered the job market. In addition to this, NBFC mess has created more mayhem as NBFCs
have not adequately provided the lending facility to new businesses and slowed new
employment generating activities down. Also the IT industry, power and infrastructure
industry have not created adequate jobs. (Chandramouli, 2018)

Growth of economy must convert the success into decently good and desirable job. The high
unemployment rate is due to mismatch between decent jobs and skills.

12 | P a g e
2.1.4 IIP Data
Although due to the benefits from the low base effect of last year when Indian economy was
trying to adjust itself to the new GST regime, India’s factory output has declined slightly in
July. India’s Index of Industrial Production (IIP) has moderated to 6.6% in July. The Index
of Industrial Production measures the changes in the volume of production of a basket of
industrial products during a given period with respect to the volume of production in a chosen
base period. As per the data from the Ministry of Statistics and Programme Implementation,
It has rose to 6.6% compared to 1% rise in the same period last year. But it has come down
from 6.9% in June month.

Mining output grew at 3.7% in July compared with 4.5% in July last year. Manufacturing
output grew at 7% compared with a 0.1% decline in July last year. Electricity generation rose
6.7% against 6.6% last year. This rise in manufacturing in June was because of the lower
base from last year as economy had taken a hit as dealers cut stock and put fresh orders on
hold because of the GST implementation. As per Edelweiss Research, IIP growth would’ve
been at 3.5-4 percent in June adjusting for the base effect. (GOI, 2018) (Desk, 2018)

In the manufacturing sector, 20 out of the 23 industry groups showed a positive growth. The
electronics and optical products, the manufacture of computer, the manufacture of furniture,
and manufacture of tobacco products witnessed the highest growth. Primary goods
production, capital goods and intermediate goods grew by 6.9%, 3% and 1.2% respectively
over last year. The construction goods and infrastructure rose 8.4%.

2.1.5 PMI Data

PMI (Purchasing Managers’ Index) data which is the indicator of manufacturing and service
sectors’ health rose to four month high of 53.1 in October from 52.2 in September. The PMI
provides information regarding current business conditions to analysts, company decision
makers and purchasing managers. Output growth accelerated, new orders rose significantly,
buying activity grew significantly while new export orders raised the least in three months.

13 | P a g e
 Manufacturing PMI Data

Service PMI Data

Here both PMI numbers are above 50 which indicate expansion when compared with
previous month. While numbers below indicate contraction compared with the previous
month.

2.1.5 EPI Data

Economic Performance Index measures the overall growth of the states, country and the
world by considering all the factors like inflation, unemployment, budget deficit and change
in real GDP. It can be calculated by the simple formula:

The Economic Performance Index = 100% − |inflation (%)| − unemployment (%) − budget
deficit/GDP (%) + GDP growth (%)

14 | P a g e
For India, EPI in 2017 was:

100% − 5.21% (inflation) − 6.9% (unemployment) − 3.5% (budget deficit) + 6.7%

(GDP) = 91.09%

India’s performance is considered to be good based on this EPI performance table:

Performance EPI values

A+ (Superior) Above 100
A (Excellent) 95-100
B (Good) 90-95
C (Fair) 80-90
D (Poor) 60-80
F (Very Poor) below 60

15 | P a g e
2.2 Macroeconomic Policies in the Country

2.2.1 Monetary Policy

According to last bi monthly monetary policy committee meeting of the RBI held on October
8, 2018, RBI kept its repo rate unchanged at 6.5% and reverse repo rate at 6.25% after two
rate hikes earlier. The repo rate is the rate at which the RBI lends to commercial bank. But
loan rates will hike as many banks have already increased the lending rates. It was expected
that it would increase the repo rate to combat the inflationary risk due to rising fuel prices and
depreciating rupee. However, the RBI governor said that they are not trying to control falling
rupee as it seems to be at comfortable level compared to other emerging market’s currency.
Instead, the RBI’s main focus is to target inflation at 4% with 2% flexibility apart from
liquidity, capital flows, fiscal deficit etc.

Quarterly projection of CPI inflation (YOY)

(Source: RBI)

Quarterly projection of GDP gwoth (YOY)

(Source: RBI)

16 | P a g e
Due to this move, India bond yields went down to 8.04% from 8.14%. Due to stress in banks
and NBFCs and increasing inflationary pressure, the RBI changed its policy stance to
“calibrated tightening” instead of “neutral”.

Even though rising oil prices might have impacted the disposable income adversely, private
consumption has remained robust and is highly likely to remain robust. Increased financial
resources to the corporate sector, improving capacity utilisation and larger FDI inflows are
well for investment activity.

However, investment activity may be dampened due to tightened global and domestic
financial condition. Investment activity may also be dragged down by Rising crude oil prices
and other input costs by denting profit margins of corporates. Due to unchanged interest rates
in India and increasing interest rates in US, FII may pull out their money from India and put
it in US bonds. This will result in depreciating rupee.

Due to depreciating rupee, exports usually go up. However, this time depreciating rupee may
badly impact economy as uncertainty hovering around the increase in exports because of
tariff wars and trade wars. The RBI has projected GDP growth at around 7.4% for 2018-19.
RBI also warned government to stick with its Fiscal Deficit target otherwise it will result in
crowding out private investment. (RBI keeps repo rate on hold but shifts stance to
‘calibrated tightening’, 2018)

RBI also uses other tools to control the liquidity in the economy i.e. CRR, SLR, CAR etc.
CRR (cash reserve ratio) is the amount that banks have to keep with RBI as a percentage of
total net demand and time liability (or the total bank deposit).

Currently CRR in India is at 4%. Banks cannot use this money for its commercial activity.
Banks also don’t earn anything on these funds. SLR (Statutory Liquidity Ratio) is the amount
that banks have to keep with RBI as an investment in government security, liquid cash or
gold. Currently SLR rate is 19% which can be raised up to 40%. This money also remains
blocked with RBI. Banks earn interest on these funds unlike funds kept under CRR
requirement.

So, the funds under CRR and SLR are blocked with RBI. However, these are also the safety
measures as these funds can be used in time of emergency. To confirm the risk averseness of
banks another measure called Capital Adequacy Ratio (CAR) is also used in banking system.
It is the ratio of bank’s capital to its risk weighted assets and current liabilities. It prevents
banks from being over leveraged and insolvent in the process. As per RBI, Indian scheduled
commercial banks are required to maintain 9% CAR and public sector banks are required to
maintain 12% CAR against the 8% as per Basel 3 requirement of 8%. Government is putting
some pressure on RBI to ease these rates to increase the liquidity in banking system. (Online,
2018)

17 | P a g e
2.2.2Fiscal Policy

Fiscal policy is the government’s action and inaction on public expenditure and taxation to
influence private consumption and investment. It can also influence monetary policy.
Government decides whether to borrow money from domestic or foreign sources or print
more money depending on the surplus or deficit. This influences other economical variables.
Excessive printing leads to higher inflation and excessive spending by borrowing leads to
inaccessibility to funds for private players resulting in crowing out effect. (Singh, 2018)

(Crowding Out Effect)

The main objective of Indian fiscal policy is to improve and maintain employment level, to
stabilize price level, to improve the growth rate of economy, to achieve the balance of
payments and to ensure the social justice to all the citizens. (Dutta)

Indian central and state government use fiscal policy to mobilize financial resources. The
most important source for mobilizing financial resources in India is taxation – direct as well
as indirect taxes. Financial resources can also be mobilized through influencing public
savings by reducing gvt expenditure and increasing public surplus.

Financial resources can also be influenced through private savings. Through measures like
tax benefits, sources can be raised from private sector and households. Sources can be

18 | P a g e
mobilized by treasury bills, Govt. securities and by deficit financing. Govt. also uses taxation
to achieve equality in society. Higher direct taxes are levied on rich section i.e. direct taxes
like income taxes on richer and indirect taxes like GST on luxury products. This tax money is
used in poverty alleviation program for the benefits of poor.

Govt. tries to control inflation by introducing tax saving scheme, reducing fiscal deficit etc.
Govt. increases infrastructure expenditure and rural spending to improve employment rate.
Also benefits are given in terms of taxes on SSI (small scale industry) to encourage
investment and hence to increase employment. Govt. also tries to maintain CAD and FD to
achieve balance in payments and to increase national income. Govt. motivates exports and
sometimes tries to curb the import. It also encourages foreigners to invest in India to increase
the money flow and liquidity.

India’s CAD is at 2.4% of GDP in April-June quarter lower than 2.5% in the same period a
year ago. In value terms it was higher at $15.8 billion against $15 billion last year. Indian
currency is declining due to increasing trade deficit and other global factors like increasing
crude oil prices. (Press Trust of India, 2018)

Government has taken steps to encourage exports and to curb the non essential imports.
Crude oil, Gold and electronic items contribute the most in import of India. Rising oil prices
and increasing import of gold and electronics have caused in increasing CAD. While, service
export has helped in reining the CAD. But the risk here is lack of diversity in services.
Income flow is determined not only by primary flow but also from secondary flow like
remittance.

Remittance from Indians amounted to $18.8 billion. Debt and equity market witnessed
outflow of $8.1 billion in Q1FY19 compared to inflow of $12.5 billion. Deficit is also
increased by dividend and interest paid on inflow like FPIs, FDIs, ECBs etc which accounted
for 43% of total CAD in April-June 2018. India must focus on attracting FDIs, increasing
exports instead of curbing the imports. It is more favourable to keep Indian economy more
open than keeping it more protectionists. It will improve the competition among local and
global players and hence it will result in more efficiency and quality. (Jayakumar, 2018)

19 | P a g e
During the April-August period, India’s fiscal deficit (FD) stood at 94.7% of the budgeted
target while revenue deficit crossed the budget estimate at 113.8% in the same period,
according to Controller General of Accounts (CGA) despite significant transfer of surplus by
RBI to government. Revenue deficit is a subpart of fiscal deficit.

It is a mismatch between expected revenue and expenditure. It arises when government’s

actual net receipt are lower than the projected receipt. It does not mean the actual loss in the
revenue. There is a risk in achieving fiscal deficit goal of 3.3% due to pressure on the
government for spending more this year preceding the election year.

However, Government says that the target of 3.3% of the total GDP will be achieved
comfortably without any cut in Capex. GST, dividends and profits, and disinvestment etc.
Contribute a lot in revenue generation and minimum support prices, the National Health
Protection Scheme, fuel and other subsidies, and bank recapitalization contribute in
expenditure other than Capex. (Mishra, 2018)

2.3 India & WTO on Agricultural Subsidy

Since 1 January 1995, India has been a member of WTO and since 8 July 1948, a member of
GATT. The objective of WTO is to promote free & liberal trade. India ratified the WTO
Agreement on Agriculture, during the Uruguay round in 1994. This agreement focuses on
Market Access, Domestic Support and Export Subsidies. The members have committed to
reduce their export subsidies, where India being a developing country had a target to reduce
its export subsidy expenditure by 14%.

India raised concerns over food security and flexibility that developing nations must have
when it comes to providing subsidies to key farm inputs. The aim of WTO has been to reduce
the subsidies provided to the citizens and farmers for farming and food security to ensure that
the markets can freely decide the prices, priorities and policies of resource utilisation.

WTO under the influence of developed nations has been discussing that these are “market
distorting subsidies”. According to WTO provision, Govt. cannot provide subsidies beyond
10% of gross agricultural production. Talks have also been going on to impose sanctions on
countries that breaches this provision.

On the other hand, India has been facing very serious problems regarding hunger and
malnutrition. Debate has been going on about Green Box subsidies (for not distorting trade),
Blue Box subsidies (keeping subsidies within limits) and Amber Box subsidies (considering
local supports as distortion to production). However, US have been increasing subsidies to its
farmers for last many years.

India has already started increasing the efficiency of its subsidies program via direct cash
transfer scheme instead of providing food via ration stores. This will increase the efficiency
of the system and reduce the corruption. The subsidy on fertiliser, irrigation and electricity
has been reduced to $22.8 billion in 2014 compared to $29.1 billion in 2011. The non-market
distorting subsidies (referred as ‘green box’ subsidies in WTO) have also been reduced to
$18.3 billion in 2014 from $24.5 billion in 2011. However, the subsidy on public storage for

20 | P a g e
food security has been increased to $14.4 billion from $13.8 billion. (Suneja, India to WTO:
No breach of farm subsidy limits in FY15 and FY16 , 2018)

If all the subsidies will be removed, the prices of farm outputs will be driven by the open
market and hence, the price of food will shoot up. Many countries lack necessary skills,
energy, irrigation facilities, IT infra and capital. If subsidies will be abolished on buying and
distributing food, these countries cannot compete with US, Europe or China where
government provide subsidies on these facilities. However, per head subsidy is very less in
India compared to that in the USA.

Particulars India USA

Total subsidy (excluding on $ 37,73,85,00,000 $ 25000
R&D and infra) in 2015
Beneficiaries 9.05 crore 31,80,000
Per head subsidy $ 7860 $ 417

For India, “a permanent solution on public stock holding for food security purposes is a
priority” according to NITI Aayog. (Jain, 2017)

3.0 Challenges
Low domestic demand and high commodity prices are main concerns. Boosting investors’
confidence and hence, private investment will remains a significant macroeconomic
challenge in coming year. Due to higher growth and commodity prices, inflationary pressure
is also a major concern. Due to bad monsoon, implementation of farm loan waivers in
election year, minimum support price, upside risk in inflation will always be there in future.
Government expenditure is necessary for the developing country like India, but it is useful
and it will be converted into crowding in effect only when such expenditure is done in
capital expenditure instead of subsidies and loan waivers.
Trade wars between nations may also impose some economic threat on India. However, trade
war between USA and China can be capitalized if government give some incentives and
motivation to exports. India’s share in export segment in total world economy is 1.8%. So
there is huge potential to give it a further push. To increase this figure government can
implement some major reforms in this direction i.e. providing export credit to manufacturer,
increasing capital base of export credit guarantee scheme (ECGC), increasing subvention etc.

While depreciating rupee is expected to provide support to exports and exporters, increasing
protectionism globally and slower than expected global growth may hamper giving boost to
exports this year. Therefore, a sustainable recovery in private consumption and investment
can provide the major support to growth.

21 | P a g e
4.0 Conclusion
India is growing faster than any other country. By FY27, India's GDP is expected to reach up
to US$ 6 trillion to reach upper-middle income status. It will be backed by digitisation,
globalisation, favourable demographics and reforms.

Due to change in consumer behaviour, demographic dividend, high employment rate backed
by the highest GDP growth, increasing disposable income and shift in consumers’
expenditure pattern, India is expected to become the third largest consumer economy with the
consumption level at $ 4 trillion by 2025 according to Boston Consulting Group (BCG).

According to a report by PricewaterhouseCoopers Indian economy is also expected to

become the second largest economy in terms of Purchasing Power Parity (PPP) surpassing
even the USA by 2040.

However, despite having the largest young population, India has not fully capitalized its
demographic dividend. 30% of young population is NEET (not in Employment, Education or
Training). In spite of having jumped to 77th position in ease of doing business, corruption has
remained the main concerning factor for the same.

India’s rank is disappointing at 60 out of 79 developing economies for inclusivity as per the
latest Inclusive Development Index of World Economic Forum. India’s 53% of wealth is
owned by the richest 1%, up from 36.8% in 2000. India must stop rising inequality, so that it
can lift people out of poverty at a faster pace.

India also needs more women participation in work force to reduce inequality. India ranks
135 out of 144 countries for women participation.

Gender Inequality in Workforce

(Source: WEF)

On the back of government of India’s reforms and push to infrastructure, India's trade is
expected to touch Rs 28-30 trillion (US$ 385-412 billion) by 2019.

Due to change in consumer behaviour, demographic dividend, high employment rate backed
by the highest GDP growth, increasing disposable income and shift in consumers’
expenditure pattern, India is expected to become the third largest consumer economy with the
consumption level at $ 4 trillion by 2025 according to Boston Consulting Group (BCG).

22 | P a g e
5.0 References
1. Bureau, E. (2018, October 9). IMF retains India FY19 growth outlook at 7.3% .
Retrieved from The Economic Times:
https://economictimes.indiatimes.com/news/economy/indicators/imf-retains-india-
fy19-growth-outlook-at-7-3/articleshow/66126065.cms

2. Business Line. (2018, 02 15). Govt to change base year for GDP, IIP to 2017-18.
Retrieved from https://www.thehindubusinessline.com/economy/govt-to-change-base-
year-for-gdp-iip-to-2017-18/article22760928.ece

3. Business Today. (2018, 08 08). India's average per capita income higher in last 4
years at Rs 80,000. Retrieved from Business Today:
https://www.businesstoday.in/current/economy-politics/india-average-per-capita-
income-higher-last-4-years-rs-80000/story/281142.html

4. Chandramouli, R. (2018, November 8). Study finds unemployment rate at 6.9%, a 2-

year high . Retrieved from Times of India:
https://timesofindia.indiatimes.com/india/study-finds-unemployment-rate-at-6-9-a-2-
year-high/articleshow/66538963.cms

5. Desk, B. (2018, September 12). India’s Industrial Production Growth Moderates To

6.6% In July. Retrieved from Bloomberg Quint:
https://www.bloombergquint.com/business/indias-industrial-production-moderates-to-
66-in-july#gs.TaPxoO8

6. Dutta, N. (n.d.). Crowding-Out Effect. Economicdiscussion.

7. Ganguly, B. (2018, 11 28). Economy Matters. Retrieved from Confederation of Indian

Industry: https://www.ciiblog.in/indian-economy-in-2018-current-status-prospects-
and-challenges/

8. GOI. (2018). Open Government Data (OGD) Platform India. Retrieved from
Data.gov.in: https://data.gov.in/keywords/iip

9. India Brand Equity Foundation. (2018, 10). ABOUT INDIAN ECONOMY GROWTH
RATE & STATISTICS. Retrieved from India Brand Equity Foundation:
https://www.ibef.org/economy/indian-economy-overview

10. India Economic Outlook. (2018, November 13). Retrieved from FocusEconomics:
https://www.focus-economics.com/countries/india

11. Jain, S. K. (2017). For India, the fight at WTO will be about food security.
DowntoEarth.

12. Jayakumar, T. (2018). Reining in Current Account Deficit: Options for India. Forbes
India.

23 | P a g e
13. Kadam, K. ( 2018, September 1). Q1 GDP at 2-year high of 8.2%: Here are six
charts that depict what's going on in the economy. Retrieved from FirstPost:
https://www.firstpost.com/business/q1-gdp-at-2-year-high-of-8-2-here-are-six-charts-
that-depict-whats-going-on-in-the-economy-5089311.html

14. Mishra, A. R. (2018). Fiscal deficit in April-August at 94.7% of govt’s annual target.
LiveMint.

15. Online, F. (2018, 10 5). RBI Monetary Policy Review: Repo rate unchanged at 6.5%;
what saved the day for loan borrowers. Retrieved from Financial Express:
https://www.financialexpress.com/economy/rbi-monetary-policy-rbi-keeps-key-
policy-rates-unchanged-at-6-5-in-surprise-to-street/1338591/

16. Press Trust of India. (2018, 09 08). India's Q1 current account deficit (CAD) at 2.4%
of GDP: RBI data. Retrieved from https://www.business-
standard.com/article/economy-policy/april-june-cad-widens-to-15-8-billion-on-
higher-trade-deficit-rbi-118090700824_1.html

17. RBI keeps repo rate on hold but shifts stance to ‘calibrated tightening’. (2018,
October 8). Retrieved from livemint:
https://www.livemint.com/Money/4IPwlJa0UImDb83uQmnHyK/RBI-Monetary-
Policy-Review-Live-25-bps-hike-in-repo-rate-li.html

18. Real GDP growth. (n.d.). Retrieved 11 16, 2018, from IMF:
https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/
WEOWORLD

19. Singh, H. (2018, February 26). Fiscal Policy of India: Meaning, Objectives and
Impacts on the Economy. Retrieved from Jagranjosh:
https://www.jagranjosh.com/general-knowledge/fiscal-policy-of-india-meaning-
objectives-and-impacts-on-the-economy-1448705973-1

20. Suneja, K. (2018). India to WTO: No breach of farm subsidy limits in FY15 and FY16
. The Economic Times.

21. Suneja, K. (2018, October 15). WPI inflation rises to 5.13% in September . Retrieved
from The Economic Times:
https://economictimes.indiatimes.com/news/economy/indicators/wpi-inflation-rises-
to-5-13-in-september/articleshow/66213677.cms

22. The Economic Times. (2018, 08 31). India's GDP grows at 8.2 per cent in 2018-19
Q1. Retrieved from The Economic Times:
https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-grows-at-
8-2-per-cent-in-2018-19-q1/articleshow/65623967.cms

24 | P a g e
23. The Statistics Portal. (n.d.). India: Inflation rate from 2012 to 2022 (compared to the
previous year). Retrieved 11 15, 2018, from Statista:
https://www.statista.com/statistics/271322/inflation-rate-in-india/

24. Webteam, Z. (2018, 10 12). Retail inflation rises to 3.77% in September 2018; Food
inflation inches up 0.51%. Retrieved from ZeeBusiness:
https://www.zeebiz.com/india/news-retail-inflation-rises-to-377-in-september-2018-
food-inflation-inches-up-051-66976

25. Wright, A. (2017). 8 things you need to know about India’s economy. World
Economic Forum.

25 | P a g e