India: The Fastest Growing Major Economy in the World
By admin December 1, 2015















India’s economy grew at an annual rate of 7.4 percent in the last three months, according to the Ministry of Statistics and Programme Implementation. That being said, India continues to be the fastest growing major economy in the world surpassing China’s 6.9 percent growth, Russia’s contracted 4.1 percent growth, and Brazil’s forecast to shrink to 4.2 percent. Moreover, India’s rate of growth is up from experiencing a 7 percent growth rate in the previous quarter.

Higher domestic demand and manufacturing activity is credited for the increased growth, according to private sector economists. While the fall in commodity prices has hurt most developing countries, India’s economy has benefitted as the sharp falls in the cost of oil and gold imports are reducing the trade deficit and giving a net boost to economic activity.

According to the Bloomberg Business Report, manufacturing output rose 9.3 percent during this period, financial services 9.7 percent, and trade and hotels grew 10.6 percent. Furthermore, India’s electricity and gas production rose 6.7 percent while the construction sector expanded 2.6 percent.

This good news about the country’s economic growth comes right before the Reserve Bank of India plans to meet to discuss the country’s interest rates. The Central Bank Governor, Raghuram Rajan, has cut interest rates by a total of 125 basis points throughout the year. However, Rajan is now expected to hold interest rates steady as India looks to control price rises ahead of a tighter 2016 inflation target.

Although India is still considered to be one of the world’s fastest growing economies, some economists are still skeptical of India’s sustainable growth prospects. “The upshot is ultimately buoyed growth, but it’s still far from full-throttle,” said Vishnu Varathan, a senior economist at Mizuho Bank. According to Varathan, “India’s softer inflation is boosting consumption and India is currently experiencing a nascent industrial uptick, but growth momentum is not on a solid footing yet.”

Analysts have noted that the growth may have been driven more by public spending than by private consumption as the Indian government has been boosting investment in infrastructure to stimulate economic growth and complement private investment. In the second quarter, investments grew 6.8 percent compared to 4.9 percent in April-June of last year. Moreover, private consumption growth slowed to 6.8 percent in the second quarter from 7.4 percent in the first quarter.

It should also be noted that the Indian government has changed the way it calculates its gross domestic product and many economists do not understand this new method. Rajan even remarked that he did not want to release the new growth rate until he could fully understand the meanings of the new calculations. Despite the uncertainty of the new calculations, however, The International Monetary Fund’s latest estimate similarly projects the Indian economy to grow at 7.5 percent in 2016.

Indranil Pan, the Chief Economist at the Mumbai-based IDFC Bank, believes that growth is on a relatively stable path. “There will be enablers to improve growth through consumption and low interest rates in the economy. Growth is likely to moderate in the next few quarters as government expenditure was front-loaded, and it will get slower going ahead,” said economist Pan. Furthermore, Morgan Stanley believes that India is one of the few emerging economies that has completed the painful macro adjustment process necessary to sustain growth. As the Indian government remains focused on accelerating growth, analysts and economists will continue to evaluate and observe India to determine how well the country can and will sustain growth in the long term.


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