The Indian Economy
The Indian Economy is currently experiencing strong growth adverse to difficulties witnessed after the global financial crisis. Current GDP levels at approximately $1.5 US Dollars as the fifth largest economy in the world. The aim of this paper is to address macroeconomic conditions that may affect India’s ability to maintain high levels of growth.
Monetary and Fiscal policy have been analysed and recommendations made to manage inflation, employment and debt. Tax increases on higher earners and other possible consumption taxes would slow aggregate demand but allow government to increase its spending. Inflationary pressures are as a result of the economy not being able to meet supply requirements and investment in agricultural practise and increase in the manufacturing sector should assist in reducing inflation which is 11.7%. This will also have positive effects on employment which will allow India to reach higher levels of GDP in the long term.
Other areas of long term planning will be for improved and widespread access to education and move people into the services sector which currently employs only 34% of people compared with 52% in agriculture and 14% in manufacturing. In the short term the migration of workers from agriculture into manufacturing is a possibility. Diversion of higher taxes to reduce debt levels sitting at 55.9% and long term increase in employment would also fund the ability to service debt.
Exchange rates are also a focus for government. If the economy is to generate more manufacturing it should be able to export higher levels and encourage further growth in the sector. Services such as IT exports are also extremely important as a large employment base and a significant portion of private consumption is generated from the middle and high income brackets. Keeping the Rupee at globally competitive levels to keep exports attractive is therefore important.
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