India at 70

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70 years since independence and India’s economy is doing well.

India boasts the 6th largest GDP and the IMF predicts 7% growth this year and the next. That’s better than China, and leaves the other BRICs (Brazil, Russia, India and China) far behind.

There’s now talk that the country could soon be the third biggest economy in the world.

India is benefiting from reforms which started in the 90s.

The recent introduction of a universal sales tax has helped increase government revenue, although it could benefit from further simplification. Still, India attracted almost $70bn in foreign direct investment last year.

The elimination of smaller notes (demonetisation) is also starting to make a dent in the country’s shadow economy which makes up almost half of GDP. Traders are instead being encouraged to use digital payment systems, where money enters the banking system. This reduces money laundering rates and enables efficient taxation.

Interest and inflation

Some are calling for interest rates to be lowered even further because the private sector is struggling with unaffordable debt. The central bank lowered rates last year in order to boost inflation.

And there’s still concern about the low inflation rate, suggesting that consumer demand remains weak, though it is expected to rise.

What’s more, with China’s currency weakening, the increase of cheap Chinese imports may threaten India’s manufacturing industry.

In the long term, India will need to review its burdensome employment law, the rules governing land disposal and the education system, in order to protect its growth.

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