Will Indian Economy Do Better In 2016?

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Sai Ravi Teja Pingali, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The year 2015 was a bleak year for global economy due to the subdued demand but India fared relatively better. It was the year when for the first time India surpassed China’s growth rate. The World Bank has predicted that India would continue to lead the global economy in 2016 as well. The Indian economy, which is the third largest economy of the world in terms of purchasing power and seventh largest in nominal GDP, is poised to grow at 7.5% in the financial year 2015-16. This is much less than the 8.1-8.5% forecasted in the Economic Survey in February 2015.

The energy sector presents an encouraging picture for the upcoming year. According to Piyush Goyal, the Minister for Power, around 66% power plants were operating at critical level in 2015 but the start of the year 2016 saw no power plant operating at such level. With the thrust on solar power, and development in renewable energy sector, Indian energy sector will likely witness a major improvement. If the government would be able to provide the electricity at affordable prices, a surge in manufacturing activity can be anticipated.

As the global oil price indexes are showing no sign of improvement, there would be no stress on balance of payments as well as on inflation. The Current Account Deficit is likely to remain at comfortable level under 1.5% of the GDP. In November 2015, Indian foreign exchange reserves were enough to cover the imports for 12 months which is more than adequate. However the performance on export front will remain less than adequate due to the flattening of global demand which is expected to continue in 2016.

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