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Will decade lowest 5% growth halt economic reforms?
In 2012-2013, India’s economy expanded by five percent, which is considered the slowest pace in the last decade. Reasons for this bleak performance include high inflation, lack of confidence among investors, fall in the demand for exports from Western nations and high inflation.
From the last quarter of 2012 to the first quarter of 2013, the Gross Domestic Product (GDP) grew by 4.8 percent, higher than the previous quarter when the GDP stood at 4.5 percent.
To boost the economy, the Indian government came up with policies and reforms. Unfortunately, analysts are continuing to witness a drop in economic activities.
Standard and Poor’s, a global ratings company, declared that India faces a 33 percent chance of losing its current grade rating in light of new threats to the country’s economic reforms and growth.
Currently, the country’s investment rating stands at ‘BBB-minus’, the lowest among all the other BRICS countries – Brazil, Russia, China and South Africa.
According to Shubhada Rao, Yes Bank’s Chief Economist, the Indian government needs to come up with more effective policies and reforms to turn around investors’ sentiments. Recently, several government officials were dodged by corruption scandals, making it slightly harder to see through existing economic reforms.
However, the decade’s lowest economic growth of five percent does not seem to stop the Indian government from making efforts to reform the economy.
Even the US President Barack Obama urged the Indian government to push for economic reforms to address the concerns of companies in India with regard to H-1B visas.
The Chairman of the US Indian Business Council, Ajay Banga, believes the US and India can work closely to enhance the economic status of both the countries.
According to him, the US needs to realise and recognise that Indian investments in the US are growing. Currently, they stand at Rp 625 billion (US$ 11 billion) and are a driving force for the creation of jobs for Americans.
Through these investments, the US is able to facilitate technology transfer too. So, it is in the interest of the US government to increase the number of H-1B visas issued to Indian IT professionals. This is also known as immigration reform, which will ultimately improve India’s economy.
So, despite problems faced by India in terms of economic growth, it is not hampering the Indian government from implementing further economic reforms. It is true that given the current economic growth status, it is difficult to see through certain reforms.
However, the Indian government is not losing hope. So far, the government has opened up aviation and retail sectors to increase foreign investments. It has also reduced fuel prices slightly to reduce the burden of subsidies. However, there is more on the government’s plate. It still has to open up insurance and pension sectors, which may pose a challenge.
India is in talks with many countries, including the US, to enhance bilateral ties, increase its export value and increase the amount of investments in the country.
Although the Indian economy is not performing as well as what was projected by international organisations such as the Organisation for Economic Cooperation and Development, which had predicted that India’s growth, will be 5.9 percent initially, it has not been shattered completely.
The number of economic reforms is increasing and Indians are confident that the economy will be revived slowly but surely.