MBA Aspirants are expected to know and understand the current economic conditions and inflationary scenario. This general awareness will help you in WAT/Essay/GD and PI.
Read: What reforms will improve economic growth?
In February 2014, the British Broadcasting Corporation published an article, claiming that India’s economic growth rate was lower than what analysts had predicted or expected. India’s economy has been weighed down by a number of factors, including high inflation, low foreign investments and a weak currency. So, unless these issues are addressed, we will not see economic growth in India.
Reforms will only be successful if they address the aforementioned issues. So, before the government makes a list of reforms that will help the nation, it is important for it to understand what causes inflation, pushes investors away from India and weakens a nation’s currency. Inflation, which is essentially the rise in prices, occurs when the demand for various products is higher than the supply.
So, to reduce inflation, it is important for the government to increase the supply of products that are high in demand. The government can come up with policies that will attract foreign investors to India. When foreign investors set up factories and manufacturing plants in India, the supply of products will automatically increase.
Reports claim that foreign direct investments (FDIs) in India have decreased from Rs 110 billion (US$ 1.8 billion) in December 2013 to Rs 52 billion (US$ 848 million) in January 2014. This is detrimental to the growth of the nation. India is in need of money and goods; hence, it is important for the government to re-work its strategies and come up with policies that promote the establishment of foreign firms in India.
Last year, the government raised FDI limits in a number of sectors, including defense and telecom. Such reforms are necessary for the growth of the Indian economy and the government should reduce red tape and make it easier for companies to set up their operations in India.
Another area that the Indian government should focus on is its net export value. A country will only be able to grow if it manages to export more than what it is importing. If the import value is higher than the export value, the country will face a trade deficit. This is exactly what India is facing today.
Since India is importing more than what is exporting, there is a significant decrease in the demand for Indian currency. And this decrease in demand results in the depreciation of the currency. So, the government should take steps to increase the export value of the nation and ensure that there is a trade surplus.
This is possible if manufacturing plants increase their rate of production and produce more than the local consumption rate. For this, the government has to encourage investors to set up firms and it has to provide incentives such as tax rebates to businessmen so that they are motivated to produce more goods.
Investments are important for the growth of a nation. Only when investments start pouring into India will the government have funds for infrastructure development. So, the Indian government has to increase FDIs, encourage local firms to produce more so that India’s export value goes up, and ensure that unnecessary bureaucracy or red tape that discourages businessmen from setting up firms in India is eradicated. Only then will we be able to achieve significant economic growth.