Major Challenges of Indian Economy

Current trends and challenges in the Indian economy

Good news is underway for India as its economy is poised to win back its tag of the fastest growing economy in the world. The recent upgrade of India’s rating by the US based credit rating agency Moody’s (Baa2 from Baa3) in recognition of the reforms agenda pursued by the Government is a major boost to investor confidence. Further, as the short term disruptions caused by major reforms such as the Goods and Services Tax (GST) and demonetization recede, the economy is on the rebound and is likely to achieve higher Growth targets in the New Year.

Growth

Gross Domestic Product (GDP) is on a recovery path after slowdown in the first quarter of 2017-18, and Real GDP growth for the second quarter (2QFY18) increased to 6.3% from 5.7% in the previous quarter, a likely fallout of the introduction of GST. The second half of 2017-18 will witness a higher growth rate, and this is further expected to consolidate in the coming New Year, as the benefits of GST and other reforms gain traction.

The agricultural sector registered moderate growth as erratic monsoon in several parts and flooding in some states impacted performance.

Industrial growth accelerated sharply during the second quarter of FY 2018 and jumped to 6.9% from 1.5% in the previous quarter, on account of a sharp increase in manufacturing and electricity, gas, water supply and utility services. Manufacturing registered an impressive growth at 7% in 2QFY18 as compared to 1.2% posted in the first quarter. services sector grew only marginally at 6.6% in the second quarter as compared to 7.8% in the previous quarter.

Inflation

The economy saw high inflation during October 2017 owing to elevated food prices. Going forward, this is likely to be contained on account of a good harvest and favourable monsoons. The impact of GST on prices is likely to become clearer in the coming year as the teething problems related to its implementation ease out. Further, the GST Council’s decision to cut tax rates on 177 items is also expected to partially ease the inflationary pressure, as the companies start passing the benefits of lower prices to consumers.

External Sector

Healthy foreign fund inflows caused the rupee to strengthen during the latter half of the year. The recent Moody’s upgrade is likely to encourage further inflows and the rupee could appreciate further. On the other hand, the impact of the decision in the US to raise interest rates and introduce tax cuts may work the other way. In any case, India’s consumer markets are expected to remain a strong incentive to FDI. A contraction in export growth pushed the merchandise Trade Deficit to a near 3-year high in October 2017, which was forcefully reversed in November with a positive growth rate of over 30%. With the streamlining of GST related issues and some changes in GST rules by the Government as well as firming of global recovery, export growth will emerge as a powerful growth driver in 2018.

Monetary Policy

The Reserve Bank of India (RBI) kept policy rates unchanged in its fifth bi-monthly monetary policy meeting on 6th December, 2017. However, Industry is hopeful that going forward, RBI would lower interest rates to boost broad-based Investment and consumption activity which in turn would promote economic growth.

Credit Growth

Credit growth to the non-food sector shows encouraging signs of pick-up in the last few months. Recapitalization of Public Sector Banks may bolster credit flows further and ease their stressed assets situation.

CII Business Confidence Index

The Business Confidence Index (BCI) by Confederation of Indian Industry (CII), climbed up to 59.7 during October-December 2017 as against 58.3 in the previous quarter. This increase was a result of improvement in the perception regarding overall economic conditions and expectations of improved business situation post the recent disruptions which prompted companies to be optimistic about favourable economic growth in the future. The findings are part of CII’s 101st edition of quarterly Business Outlook Survey, based on around 200 responses from large, medium, small and micro firms, covering all regions of the country. The recovery recorded in the index coupled with India’s sharp improvement in the Ease of Doing Business rankings (India jumped 30 places to 100) this year reinforces company perception that demand pick up is underway. Most of the respondents in the survey also believe that GST payments would become hassle-free by Q1 2018-19.

Challenges

Firms rated low domestic demand followed by high commodity prices as main concerns in CII’s Business Outlook Survey. Stepping up private investment remains a major macroeconomic challenge in the next year.

Inflationary pressures also remain a concern. Though food prices are likely to be contained on account of favourable monsoons, caution must be exercised as upside risks still remain in the form of implementation of farm loan waiver and 7th Pay Commission hand-outs.

India’s share in world exports is currently at 1.8%. Efforts to increase this figure by way of providing export credit to manufacturers, increasing the capital base of Export Credit Guarantee Scheme (ECGC), increasing subvention to 4% etc. must be undertaken.

The economy benefitted from increased foreign inflows during the latter half of 2017. While this is good news, efforts to contain further appreciation of the rupee should be in place as further strengthening may affect exports and job creation.

Bank credit growth hit a 20 year low in 2016-17 with Non-Performing Assets (NPAs) at 9.9%. India has been ranked fifth on the list of countries with highest NPAs. Though bank recapitalization efforts are underway, the economy needs to recover from the bad loan problem quickly for favourable economic growth in the future. The Infrastructure-2/”>INFRASTRUCTURE deficit is a major concern and infrastructure investment needs to be stepped up as currently it is not in par with the needs of the economy.

Other challenges for the economy include addressing infrastructural bottlenecks in the agricultural sector, investment in human Resources to leverage the demographic dividend, increasing expenditure on Education and healthcare sectors, and social security provision for the unorganized sector. With on-going reforms that are beginning to positively impact the economy, CII is optimistic about Indian growth prospects in 2018. At the same time, policymakers need to be watchful and address the current macroeconomic challenges for a sustainable and fruitful recovery.

The Indian economy is the world’s sixth-largest economy by Nominal GDP and the third-largest by purchasing power parity. It is a fast-growing economy with a large Population and a young workforce. However, the Indian economy faces a number of challenges, including:

agriculture: Agriculture is the backbone of the Indian economy, employing about 50% of the workforce. However, the sector is plagued by low productivity, high input costs, and poor infrastructure. This has led to low incomes for farmers and rural POVERTY.
Infrastructure: India’s infrastructure is inadequate to support its growing economy. The country needs to invest in roads, railways, Airports, and power generation to improve connectivity and boost economic growth.
Education: India has a large population of young people, but the quality of education is poor. This is a major obstacle to economic growth, as it limits the supply of skilled workers.
Healthcare: India’s healthcare system is inadequate to meet the needs of its population. The country has a high rate of poverty and Malnutrition, which contributes to poor Health outcomes.
EMPLOYMENT: India’s Unemployment rate is high, especially among young people. This is due to a number of factors, including the slow growth of the manufacturing sector and the lack of skilled workers.
Inflation: India’s inflation rate is high, which erodes the purchasing power of consumers and businesses. This can lead to slower economic growth.
Debt: India’s Public Debt is high, which limits the government’s ability to invest in infrastructure and social programs.
Taxation: India’s tax system is complex and inefficient, which discourages investment and economic growth.
Regulation: India’s regulatory Environment is complex and burdensome, which makes it difficult for businesses to operate.
Corruption: Corruption is a major problem in India, which distorts the economy and undermines the Rule of Law.
Regional disparities: There are large disparities in income and development between different regions of India. This can lead to social unrest and political instability.
Climate change: India is vulnerable to the effects of Climate Change, such as rising sea levels, extreme weather events, and droughts. This could have a significant impact on the economy.
Demographics: India’s population is growing rapidly, which puts a strain on resources and infrastructure. The country also has a large youth population, which could be a demographic dividend if it is educated and employed.
Governance: India’s Democracy is young and fragile. The country faces a number of challenges, such as corruption, political instability, and violence.
Security: India faces a number of security threats, both internal and external. These include terrorism, separatism, and cross-border incursions.
International relations: India is a rising power in the world, but it faces a number of challenges in its relations with other countries. These include the Kashmir dispute with Pakistan, the border dispute with China, and the rise of China as a global power.

These are just some of the major challenges that the Indian economy faces. It is important to note that these challenges are interrelated and that they can have a significant impact on the overall health of the economy. The Indian government is aware of these challenges and is taking steps to address them. However, the challenges are complex and will require sustained effort to overcome.

Here are some frequently asked questions about the Indian economy, along with short answers:

What are the major challenges facing the Indian economy?

The Indian economy is facing a number of challenges, including:

High levels of poverty and inequality: India is home to the world’s largest number of poor people, and inequality is a major problem.
Slowing economic growth: India’s economic growth has slowed in recent years.
High levels of debt: India’s government and corporate sectors are both heavily in debt.
Poor infrastructure: India’s infrastructure, such as its roads, railways, and power grid, is in need of major investment.
Corruption: Corruption is a major problem in India.
Lack of education and skills: India has a large population of young people, but many of them do not have the education and skills they need to get good jobs.
What are the government’s plans to address these challenges?

The government has a number of plans to address the challenges facing the Indian economy, including:

Investing in infrastructure: The government is investing in infrastructure, such as roads, railways, and power grids.
Reforming the tax system: The government is reforming the tax system to make it simpler and more efficient.
Investing in education and skills: The government is investing in education and skills training to help people get better jobs.
Tackling corruption: The government is taking steps to tackle corruption.
What are the prospects for the Indian economy in the future?

The prospects for the Indian economy in the future are mixed. On the one hand, India has a number of strengths, such as a large population, a young workforce, and a growing middle class. On the other hand, India also faces a number of challenges, such as high levels of poverty and inequality, slow economic growth, and poor infrastructure.

Overall, the Indian economy is likely to continue to grow in the future, but the pace of growth is likely to be slower than in the past. The government’s plans to address the challenges facing the economy could help to boost growth, but it is also possible that these challenges could slow growth.

Which of the following is not a major challenge of the Indian economy?
(A) Agriculture
(B) Infrastructure
(C) Education
(D) Population
The Indian economy is the world’s ______ largest economy.
(A) 6th
(B) 7th
(C) 8th
(D) 9th
The Indian economy is expected to grow at a rate of ______% in 2023.
(A) 7.5%
(B) 8.0%
(C) 8.5%
(D) 9.0%
The main driver of the Indian economy is ______.
(A) Agriculture
(B) Manufacturing
(C) Services
(D) IT
The main challenges facing the Indian economy are ______.
(A) Infrastructure
(B) Education
(C) Healthcare
(D) All of the above
The Indian government has taken several steps to address the challenges facing the economy, including ______.
(A) Investing in infrastructure
(B) Reforming the education system
(C) Expanding healthcare access
(D) All of the above
The Indian economy is expected to continue to grow in the coming years, but it faces several challenges that need to be addressed. These challenges include ______.
(A) Infrastructure
(B) Education
(C) Healthcare
(D) All of the above
The Indian government is committed to addressing the challenges facing the economy and is taking steps to improve infrastructure, education, and healthcare. These efforts are expected to help the Indian economy continue to grow in the coming years.
The Indian economy is the world’s sixth largest economy and is expected to grow at a rate of 7.5% in 2023. The main driver of the Indian economy is services, which account for over 50% of GDP. The main challenges facing the Indian economy are infrastructure, education, and healthcare. The Indian government is committed to addressing these challenges and is taking steps to improve infrastructure, education, and healthcare. These efforts are expected to help the Indian economy continue to grow in the coming years.
The Indian economy is a Mixed Economy, with both private and public sectors. The private sector is the largest sector of the economy, accounting for over 70% of GDP. The public sector is the second largest sector of the economy, accounting for over 20% of GDP. The Indian government plays a significant role in the economy, through regulation, taxation, and spending. The Indian economy is expected to continue to grow in the coming years, but it faces several challenges that need to be addressed. These challenges include infrastructure, education, and healthcare. The Indian government is committed to addressing these challenges and is taking steps to improve infrastructure, education, and healthcare. These efforts are expected to help the Indian economy continue to grow in the coming years.