General Awareness

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General Awareness Topic - Current Scenario and Challenges Faced by Indian Economy

Published : Monday, 25 August, 2014 02:37 PM
 
MBA aspirants must be updated with General Awareness on current topics. General awareness topics with analytically drawn conclusions will benefit you in Essay writing / GD & PI. Today, you will read General Awareness Topic: 
 
“Current Scenario and Challenges Faced by Indian Economy”
 
With the beginning 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 the two consecutive years in 2012-13 and 2013-14. This below 5 percent growth rate for two consecutive years was last witnessed way back in 1986-87 and 1987-88. However, in the current financial years i.e. 2014-15, Indian economy started showing the 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. 
 
In the external sector, 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, sustainable level of current account deficit (CAD), stable exchange rate, etc.
 
However, things have improved a little now 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. 
 
For the revival of sustainable growth of over 8 percent in the coming years, a multi-pronged approach is required to correct the structural anomalies. Growth and employment generation can be improved directly by increasing the investment rate. But investment cannot be increased by merely manipulating the interest rate. If an investor didn’t find the atmosphere conducive to make adequate returns on expenditure, low interest rates can’t force to invest savings. Thus the foremost challenge before the new government is to create an environment which is investment friendly and which can attract capital not from just domestic sources but from the foreign sources as well.  
 
      
 
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