Few days ago, the Indian government released the economic data of second quarter of this year, which showcased a 7% increase compared with the corresponding period last year. But the growth rate was lower than that in the last quarter, which is 7.5%. The slowing growth rate is out of expectation to the world of economy. Analysts pointed out that the slowing growth rate of India reflected the instability of the adjusting of its domestic economic structure as the FDI held good prospects on the Indian market. India’s service industry, the former pillar of India’s economy, is now holding it back. The harmonious development of the national economy is still a thorny issue standing in front of the Indian government.
Statistics show that India’s GDP in the second quarter is 27.13 trillion Rs, which increased by 7% compared to the same period of the previous year. The growth rate of the output value of major industries slowed: manufacturing decreased by 1.2% and agriculture slowed by 0.7%. Moreover, the service industry, which in earlier times accounts for 60% of India’s GDP, has been running not just as one wishes. Its strength to attract FDI shrunk by more than 14%. Economic Times of India reported: “Indian government has spent 36% of its capital budget in the first four months of the current fiscal year. But the elevating effect on all industries is not evident.”
In contrast to the slowing growth rate of the economy, the FDI in the second quarter increased by 32%, a large margin compared to the last quarter. The largest contributor is still the hardware and software industry. However, for industrial sectors such as architecture, communication, pharmacy, metallurgical industry, etc., the growth rate of FDI is slowing, especially in service sector with products of high added value such as banks, insurance, outsourcing, research and development, etc.
“There’s a lot of emphasis that’s being put on the opportunities that lie ahead for India and not too much attention is being paid to the challenges that remain today,” said JyotinderKaur, principal economist, HDFC Bank, “more action is needed rather than excessive optimism on the ground if India wants to seize opportunities to grow its economy.”
Indian Express analyzed that the business environment in India remained to be improved. Otherwise, foreign investment could shrink. Economic Times of India pointed out that the government failed to get two key economic reform measures passed. This includes the land acquisition amendment and legislation related to the goods and service tax. The foiled reform symbolized the failure of the government’s attempts to revitalize the domestic market and drive domestic demand.
It is widely believed in India that the central bank should again lower the interest rate by 50 points from the current 7.25% before the end of the year, which may help drive the domestic consumer market. The Indian Rupee remained relatively stable in the earlier wave of devaluation of global currency. The exchange rate to US dollar only slid by 2%. Some Indian economists analyzed that the Indian central bank was too cautious. The Indian Rupee should be further devalued to promote the export, especially the export of software, pharmacy, leather, etc., so that Indian could gain higher recognition of “Make in India”in the world.