Running out of steam


India must persevere with sectoral reforms to revive India’s battered economy, argues Chandrajit Banerjee

India saw its economy shrink last year after slow-moving reforms coupled with persistently high levels of inflation – primarily due to supply bottlenecks – triggered tight monetary intervention. Investments fell and growth in the country’s GDP decelerated to 6.9% during 2011-12.

Chandrajit Benerjee
Chandrajit Benerjee

India’s volatile investment climate has also made investors risk averse. Foreign investors have withdrawn capital from emerging markets such as India and parked their funds in relatively low-risk investments such as US dollar treasuries, thus raising the demand for dollars in the international market. The rupee has dropped to a historic low, making it one of the worst performing currencies over the past few months.

Rising inflation has hampered the pro-growth stance of the Reserve Bank of India (RBI). Figures show that inflation surged from 6.9% in February to 7.2% in March. This was driven by a rise in primary goods inflation including food articles, non-food articles and minerals, which rose to 10.5% in March from 9.9% the previous month.

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Chandrajit Banerjee is the director general of the Confederation of Indian Industry.