| Summary: | The sustained high growth in an environment of macroeconomic and financial stability—recorded by the Indian economy prior to the North Atlantic financial crisis (NAFC) has suffered a setback. While the macroeconomic policy response after the NAFC was admirably rapid, there was overshooting of the stimulus, and its withdrawal was gradual. The stimulus measures led to high growth, averaging 9%, during 2009–11, but also sowed the seeds for inflationary and balance of payments pressures, necessitating the subsequent moderation in domestic demand and growth. The domestic slowdown was then further exacerbated by domestic policy bottlenecks. Appropriate policies in regard to domestic oil prices and fiscal consolidation will make more resources available to the private sector and contribute to the recovery of private sector investment. Fiscal consolidation would also facilitate a reduction in inflation, which would then have a moderating impact on gold imports and a favorable impact on the real exchange rate, exports and current account deficit. Given the growth and inflation expectations, interest rates in India can be expected to remain above those in advanced economies, even when we move away from the present aberrations of near zero interest rates in the major advanced economies; therefore, a prudent approach with regard to the opening up of debt flows to foreign investors needs to be pursued Current Account, Capital Flows, Exchange Rate, Exports, Fiscal Policy, Gold, Growth, India, Monetary Policy, Oil Demand, Savings
|
|---|