Factors Affecting Indian Economic Growth
India is one of the fastest growing economies. Since introducing the concept of free market in 1991, the Asian country has experienced rapid growth and is predicted to grow even further. As at 2011, India was ranked 11th in terms of nominal GDP and fourth in terms of GDP purchasing power parity (PPP). India has one of the highest populations in the world and a bustling manufacturing sector. In addition to this the country has changed its economic policies since independence in order to propel economic growth further. It is also known to save a lot and this has helped it to stabilize and grow.
All in all there are several factors that currently affect the Indian economic growth and these include:
- Capital flows and Stock Exchange Market. India has had a very steady flow of capital from both foreign and local investors. In addition to this, the country also has a thriving stock market and this has helped it gain capital. With this amount of capital, India has less to worry about in case the GDP rates fall. This is because its currency can still get overvalued given its steady flow of capital.
- The RBI ranks. The currency of India largely depends on the rankings by RBI. The RBI is in charge of managing the balance of payments for India. Slight changes in the RBI assessments can have a huge impact on the currency of India and lead to either over assessment or under rankings of the country’s economy.
- Global currency trends of economically powerful countries. India like many other countries has economic and currency links with powerful countries such as US, UK, Japan, Canada and others. When the currencies of these countries are undervalued, India’s currency is also likely to depreciate. On the other hand an appreciation of these currencies has similar effects on India’s currency. These global currency trends therefore influence India’s economic growth.
- Political changes. Political setup in India also influences its economic growth. A change in the country governance often leads to changes in economic policies especially with regard to importation and exportation of goods and services. Political changes also impact on the tax rates and may affect the investment climate which ultimately influences the economic growth rate of the country.
- Energy and oil. India imports oil in large quantities. This is an essential commodity and it affects India’s economic growth rate. When crude oil prices in the world market fluctuate, India’s currency cannot remain stable. High oil prices result in high inflation rates hence overvaluing of India’s currency.
- Demographics and poverty rates. India is one of the most populous countries in the world and economists predict that its population will rise by over 300 million by 2030. In as much as this population growth may be good in terms of larger markets, it is costly to maintain and can only be fruitful if India puts in place measures to provide its citizens with social, educational and economic needs. Otherwise poverty rates which are already high will increase with this population and drag the economic growth rate of the country.
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