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Sample essay on Factors Affecting Indian Economy Growth

Factors Affecting Indian Economy Growth

Based on the recent statistics, India’s economic growth has continually been impressive and it is expected to keep the trend into the future. In 2013, the economy of the country expanded from at an annual rate of 4.8% in the July to September period, from 4.4% in the previous quarter. In fact, this was a much faster acceleration than expected by analysts. India is now ranked third largest economy in the Asian continent. However, there are quite a number of factors that significantly impact the economic growth of the nation including, high inflation, drop in foreign investment, weak currency among others.

Despite the impressive projections that have been hinted on India’s economy, the country has experienced a slowdown in some of its key sectors like mining and manufacturing. Manufacturing accounts for 14% of India’s economy and in the event that it is experiencing slow growth, there is no doubt that the country’s economy is bound to suffer. In the last few years, the mining and manufacturing industry in India have not been doing very well, reducing the revenue that is earned from the sectors. This has poorly affected the economy and there has been an outcry from the players in the industry for the government to act swiftly in order to encourage foreign investments that are slowly dwindling.

The slow growth that India has been experiencing when coupled with recovery in the developed countries like the United States have generally had a negative impact on the country’s economy. With the prevalence of such factors, India has become a less attractive option for quite a number of foreign investments. The end result of this is poor performance in the country’s economy. Besides, there has also been speculation that the United States may begin scaling back its major economic stimulus measure which has seen investors pull their money out of emerging markets in India.

As a result of the ongoing speculation about the US scaling back its key economic stimulus, India’s currency has been affected, making it to dip to almost 25% against the US dollar between January and September. Though the rupee has so far been able to recover a little compared to the previous years, it is still quite on the low against the dollar. This has significantly increased the cost of imports and contributed to a high rate of consumer inflation.

Even though the rupee is steadily gaining ground against the key currencies in the world, the country continues to experience high food and fuel prices contributing to consumer inflation. With this, there is very little growth in terms of the economy of the nation. In order to curb the menace of inflation, the central bank has been forced to increase the cost of borrowing. The latest interest rate increase in October 2013 saw it pushed to 7.75%. However, a section of observers have raised concerns that high interest rates are negatively impacting businesses and households in India, and generally hurting the growth of the country’s economy.

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