India’s GDP, despite the short-term crisis, managed to achieve a growth of 8.2%, highest in 2 years, but it does not really reflect the fluctuating trends of macroeconomics. Although, the bigger picture suggests an increase but turmoil can be caused due to external factors. Increasing bank bad loans, weakening rupee and rising oil prices remain hurdles in growth.
How has Economy grown?
The GDP growth is the result of after-effects of demonetization rather than changes in any other economic trend. The fluctuating trend of the compound annual growth rate (CAGR) of GDP before note ban gradually became constant after termination of legal tender. Certainly, India is the fastest growing economy around the globe.
Terms of Trade and GDP growth
A report by Hindustan Times shows that the economy witnessed a constant decline in sectoral deflator for agriculture, it fell below the worth for industry and services in September 2017. As a consequence, there was the rise in prices of the agricultural product at a lower rate. The situation changed when the agricultural deflator showed the slight growth. The trend is likely to remain same if the government is planning to raise Minimum support prices of Kharif crops.
Inflation and other factors
External factors along with inflation continue to be a major troublemaker in the economic growth. The last meeting of RBI’s monetary policy committee blamed increasing oil prices and a rise in MSP (Minimum Support Price) as factors leading to inflation. RBI might be compelled to raise interest raise owing to the new inflation targeting framework.
Former RBI governor, YV Reddy told Bloomberg Quint that government should resist from commenting too much about the exchange rate as it confuses the markets. If at all the government expresses an opinion, it should be with intent, Reddy added. In this case, this could imply that the government wants the rupee to deteriorate even further.