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April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Will Indian Economy Do Better In 2016?

Published : Monday, 04 January, 2016 08:35 AM

Will Indian Economy Do Better In 2016?

MBA aspirants must be updated with General Awareness on current affairs.  General Awareness topics with analytically drawn conclusions will benefit you inXATIIFTNMATSNAP ,CMATMAT, and later in Post exams screening Tests like  WATGD & PI , Essay writing

Read General Awareness Topic: Will Indian Economy Do Better In 2016?

The year 2015 was a bleak year for global economy due to the subdued demand but India fared relatively better. It was the year when for the first time India surpassed China’s growth rate. The World Bank has predicted that India would continue to lead the global economy in 2016 as well. The Indian economy, which is the third largest economy of the world in terms of purchasing power and seventh largest in nominal GDP, is poised to grow at 7.5% in the financial year 2015-16. This is much less than the 8.1-8.5% forecasted in the Economic Survey in February 2015.

While the global prospects in 2016 are likely to remain same with subdued oil prices and weak demand but Indian economy is expected to do better than past year. According to the Department of Industrial Policy and Promotion (DIPP), the Foreign Direct Investment (FDI) inflow in the past 17 months has increased by 35% while it has decreased by 16% for the rest of the world. This surge in FDI would substantially increase the investment rate which is the most important prerequisite of the growth.

The energy sector presents an encouraging picture for the upcoming year. According to Piyush Goyal, the Minister for Power, around 66% power plants were operating at critical level in 2015 but the start of the year 2016 saw no power plant operating at such level. With the thrust on solar power, and development in renewable energy sector, Indian energy sector will likely witness a major improvement. If the government would be able to provide the electricity at affordable prices, a surge in manufacturing activity can be anticipated.

As the global oil price indexes are showing no sign of improvement, there would be no stress on balance of payments as well as on inflation. The Current Account Deficit is likely to remain at comfortable level under 1.5% of the GDP. In November 2015, Indian foreign exchange reserves were enough to cover the imports for 12 months which is more than adequate. However the performance on export front will remain less than adequate due to the flattening of global demand which is expected to continue in 2016.

The past two years were very challenging for the agriculture sector which saw two successive droughts and damage of crops due to the unseasonal rains in Rabi season. Revival of growth for agriculture will remain a challenge which supports around 50% of the work force but have share of merely 13% in overall GDP. The revival of agriculture growth can contribute immensely in improving the income equalities but with no major investments coming in agriculture, the performance of the primary sector of the economy is expected to be a repeat of 2015.

The growth of manufacturing in 2016 will depend on several factors. While the improvement in energy scenario is a positive for overall economy in general and secondary sector in particular, inability of the government to usher required policy reforms will pose a drag on the growth. How government fast government is able to introduce policy reforms which would improve the ease of doing business in India, will determine the performance of secondary sector in 2016. Analysts have predicted that if Goods and Service Tax (GST) is introduced, it can lead to improvement form 1-2% in GDP. Delaying of GST bill will only delay the growth in India. Service sector would continue to remain the fastest growing sector in 2016. With the falling global oil prices, stress on road and rail infrastructure, the transport sector is expected to fare well.   

Top priorities for the New Year include rolling out the long-delayed GST, rationalising direct taxes, ensuring further ease of doing business and putting more money for social and physical infrastructure. The expected US Fed Rate hike may also have an adverse impact on the fund inflows in the country. Moreover, another challenge would be to improve the performance on social sector as India still languishes at 130th spot among 188 countries on the Human Development Index of United Nations Development Programme (UNDP).  

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