economy of india

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Post liberalisation period

Economy of India

The Economy of India is the tenth-largest in the world by nominal GDP and the third-largest by purch
Post liberalisation period

In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. However, the subsequent government policy of Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India s major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance of payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund IMF , which in return demanded de regulation.

In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies. By the turn of the 21st century, India had progressed towards a free market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. This has been accompanied by increases in life expectancy, literacy rates and food security, although urban residents have benefited more than agricultural residents.

While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody s. India enjoyed high growth rates for a period from 2003 to 2007 with growth averaging 9 Percent during this period. Growth then moderated due to the global financial crisis starting in 2008. In 2003, Goldman Sachs predicted that India s GDP in current prices would overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035, making it the third largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century.

Starting in 2012, India entered a period of more anaemic growth, with growth slowing down to 4.4 Percent. Other economic problems also became apparent a plunging Indian rupee, a persistent high current account deficit and slow industrial growth. Hit by the U.S. Federal Reserve s decision to taper quantitative easing, foreign investors had been rapidly pulling out money from India though this has now reversed with the Stock market at near all time high and the current account deficit narrowing substantially.

India is ranked at 134 out of 189, overall, in World Bank s 2013 ease of doing business index. However, this score masks the underlying data in terms of starting a business, dealing with bureaucratic permits and enforcing contracts, it is ranked among the 10 worst in the world; while in terms of protecting investors, general operations and other measures, India ranks very favorably among 189 countries.


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Post liberalisation period
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