South Asia Monitor: The Indian Economy: A Fine Balance - November 1, 1998
November 1, 1998
The Indian economy, with its burgeoning consumer market, skilled labor force, and entrepreneurial private sector, holds great promise. The economic reforms undertaken since 1991 have considerably strengthened it.
The economy, however, presently faces a difficult environment, arising from the Asian crisis, the sanctions following the May nuclear tests, and domestic political uncertainty. The deterioration in the country's macroeconomic situation that began a year ago has continued, as evidenced by slower growth in output and exports, as well as a higher fiscal deficit and inflation. The government's June budget failed to provide the reassurance called for in the present climate of uncertainty.
GDP growth has slowed, from an average of 7 percent in previous years, to 5 percent in 1997-1998. This reflects cyclical factors like over-capacity in various industries, but also a slackening in the pace of reforms. If the potential for the economy is to materialize, present difficulties need to be resolved, starting with greater fiscal consolidation and a faster pace of structural reforms. These reforms should make feasible the higher GDP growth rates of 8 - 9 percent that many claim are within India's reach.