The Indian Economy has experienced its worst decelerate since almost a decade on the back of global contractionary headwinds, domestic macro-economic disparity and policy reversals on the fiscal front, 2012 has been a challenging year for the Indian economy. The year started with news that the previous fiscal’s fourth quarter GDP had dropped to 5.5%. That in addition to low growth, macro-economic issues such as high fiscal deficit, expansionary subsidies and deterioration in current account balance has added to the slowdown.
The 2011-12 Budgets had proposed to modify the 1961 income tax law by introducing retrograde tax adjustments and General Anti-Avoidance Rules (GAAR). These steps were viewed negatively by foreign investors and ensuing downgrading of the Indian economic outlook from ‘stable’ to ‘negative’ by a major rating agency, led to continued sliding pressure on the investment climate. Moreover, as fiscal conditions deteriorated over the year, export numbers were revised in light of data inconsistencies leading to broadening of the current account deficit.
In the second half of the fiscal, the Government proactively interceded with phased reforms to stabilize the economy. Measures were taken to reduce subsidies (oil, fertilizers), which would in turn lower the fiscal deficit. The Government also took tangible actions to attract foreign direct investment (FDI) and strengthen the rupee. However, the impact of these policy reforms remains vague in the short term. Concerns continue to exist over the current account deficit scenario, prevailing supply side constraints, inadequate infrastructure investments and long term policy directions. In face of a perceivably weak macro-economic climate, a well-planned economic revival policy is required to steer the Indian Economy back on the growth path. Even though the long term prospects of the economy look promising, cautious optimism is the tone in the short to medium term.
Performances of advanced economies persist to ponder on India’s growth story. The World Economic Forum’s annual meeting for 2013 was held in Davos, Switzerland in January 2013, bringing together more than 2,000 top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world. The IMF, in its update of World Economic Outlook, lowered the world GDP growth projections by 0.1% each for 2013 & 2014 as compared to the October 2012 projections. This is because of snag risks that continue in light of transformed setbacks in the Euro area and continued risks of excessive fiscal consolidation in the United States. In particular, the Euro-zone faced considerable fiscal strain in the face of an austerity driven recession during 2012. The Euro-zone manufacturing activity contracted for a 17th month consecutively in December, according to a key survey of business managers.
The 2011-12 Budgets had proposed to modify the 1961 income tax law by introducing retrograde tax adjustments and General Anti-Avoidance Rules (GAAR). These steps were viewed negatively by foreign investors and ensuing downgrading of the Indian economic outlook from ‘stable’ to ‘negative’ by a major rating agency, led to continued sliding pressure on the investment climate. Moreover, as fiscal conditions deteriorated over the year, export numbers were revised in light of data inconsistencies leading to broadening of the current account deficit.
In the second half of the fiscal, the Government proactively interceded with phased reforms to stabilize the economy. Measures were taken to reduce subsidies (oil, fertilizers), which would in turn lower the fiscal deficit. The Government also took tangible actions to attract foreign direct investment (FDI) and strengthen the rupee. However, the impact of these policy reforms remains vague in the short term. Concerns continue to exist over the current account deficit scenario, prevailing supply side constraints, inadequate infrastructure investments and long term policy directions. In face of a perceivably weak macro-economic climate, a well-planned economic revival policy is required to steer the Indian Economy back on the growth path. Even though the long term prospects of the economy look promising, cautious optimism is the tone in the short to medium term.
Performances of advanced economies persist to ponder on India’s growth story. The World Economic Forum’s annual meeting for 2013 was held in Davos, Switzerland in January 2013, bringing together more than 2,000 top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world. The IMF, in its update of World Economic Outlook, lowered the world GDP growth projections by 0.1% each for 2013 & 2014 as compared to the October 2012 projections. This is because of snag risks that continue in light of transformed setbacks in the Euro area and continued risks of excessive fiscal consolidation in the United States. In particular, the Euro-zone faced considerable fiscal strain in the face of an austerity driven recession during 2012. The Euro-zone manufacturing activity contracted for a 17th month consecutively in December, according to a key survey of business managers.