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.
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 Foreign investors have withdrawn capital from emerging markets such as India and parked their funds in relatively low-risk investments such as US dollar treasuries, thus raising the demand for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.
