India’s economic slowdown?

Several economic indicators are turning red for India. Instead of the predicted double digits, GDP growth is expected to languish in the 5-6% range in the present and coming years. The rupee is at a life time low and the stock market is the worst performing index among developing nations. Several factors are blame, including high interest rates (which are necessary to control runaway inflation of 9-10%) and a governance deficit (no major economic reforms have been passed in the past 6 years).

English: topographic map of India

Image via Wikipedia

Other underlying structural problems in the economy include a banking system crippled by bad debts, and stubborn current account, trade and fiscal deficits.

India’s economy can seem like a bicycle—it needs to keep moving fast to be stable. Once conviction in the destination falters, companies curb investment and hope turns to fear that the country’s problems may be intractable.

It seems that inflation is the root cause of several of these problems – much of food inflation is caused by the country’s creaking infrastructure that leads to severe waste and fluctuations in commodity and food prices. This puts the recent reversal of a decision to allow international organized retail players into India, into greater focus. Scholars have long argued that FDI in the retail sector will help develop the necessary supply chains and cold storage infrastructure that a 21st century economy needs. It will also help to drive down food prices, benefiting consumers and the country’s growth prospects in the long run.

Read more at India’s economy: Slip-sliding away | The Economist.

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