The world’s economic growth is expected to rise in the year from 3.25% to 3.5%. The growth is mainly attributed to the increase in the European and U.S economies as opposed to most countries. The Chinese and other Asian countries economies are anticipated to slow down further. The consumer trends like consumer spending are the major factor that is attributed to the future growth of the United States economy to 2.8%. The economic activity in the Asian region is seen to be moderated as the Chinese economy is anticipated to reduce from 6.2% to 5.8% (OECD, 2016). India is one of the nations in the Asian region that may be hit by the hard economic conditions. The country’s economy may come under tight conditions shortly as the agricultural inputs are expected to remain quiet as the long rains continue to be experienced.
India’s manufacturing industries are based in China that will also experience the economic difficulties. The country’s economy has been on a growth momentum in the period of 2014-2015 and hit the highest of 5.5%. The development has been associated with the decline in the financial inequalities. There has been significant growth although there was depreciation in the second quarter of the year and the value was 5.3%. The economic growth was greater than the market expectations as there was the unexpected increase in the service industry as opposed to agricultural produce. Although the past one year has experienced healthy economic conditions, the future seems oblique as the market dynamic keeps on shifting.
Various factors like speed and quality of the fiscal consolidation risk the economy (OECD, 2016). The element is accompanied by other factors like high inflation levels, cheap banking services, low production in the manufacturing industries, and a decrease in the services sector also pose a significant threat to the economy of India. The Indian fiscal consolidation is led by reducing the government expenditure and get alternative sources of revenue for the fiscal balance to be achieved without interfering with economic growth. Indians account deficit has significantly reduced from the year 2013 because of the strict monetary policy; there are factors that have remained weak like the restrictions on the importation of gold, fall in the imports of crude oil, and export growth. The currency that is the Indian Rupee has had a significant slip against the US dollar mainly due to the spillover effect of the transient issues like the quick appreciation of demand for the dollar needed to pay for the imported goods. The industrial production index is notably weak, and the manufacturing industries remain vulnerable to the economic conditions. The growth per capita has been maintained in the unstable economic trajectory, and there is the contraction in the consumable goods that depicts a poor consumer demand for the products. The weak export of good is also seen as a factor that will contribute to the economic turmoil. Various economic activities are likely to be subdued in the third quarter of the financial year, and the depreciation is attributed to the Kharif harvest and lack of monsoon precipitation that has an effect on the rabi crop. There is also the slow increase in the exports that may also contribute to the downfall (Anand & Tulin, 2014).
The recent monetary policy has an adverse effect on the future economy of India. The RBI on the current issue has been under scrutiny from various stakeholders so that it can lower rates as the inflation rates reduce as the economic activities are still modest. The management of RBI refused to call for the demands of the stakeholders and maintain the key policy rates unchanged. Various factors that influence the economy may alter the benign outlook (Anand & Tulin, 2014). The effect has put the inflation expectations to remain high in India. The inflation trajectory seems to be similar to the RBI’s policy stand and any cut in the rates would cause the increase in the upside risks. Hence, it is imperative to note that Indian economy seems to be in limbo in the next few months or years.
- Anand, R., & Tulin, V. (2014). Disentangling India’s Investment Slowdown (No. 14-47). International Monetary Fund.
- OECD. (2016). Economic Outlook for Southeast Asia, China and India 2016: Enhancing Regional Ties, OECD Publishing, Paris.