India to become the 5th largest economy
Overall 2018 was a great year for India from the economic point of view. The growth rate of India in 2019 is expected to be much better than what it was in 2018. The Indian economy grew at a faster pace than most of the major economies.
India is all set to overtake the UK as the 5th largest economy of the world. While that is positive news, there are certain hurdles which the nation might face. 2019 General elections will also have an impact on the pace of economic development. Let us have a look at the challenges for India in 2019:
The economic system of India: General Elections –
As 2019 is the year for assembly elections, the government would look for measures to retain their popularity or increase it. This would mean new policies which might be introduced or the government might go with the trend of loan waivers. The BJP is already realizing the impact of lucrative offers over development after losing big polls in 3 states recently.
A cash handout is also a possibility to lure the farmer community. Also, there has been a considerable cut in the GST rates for many commodities and we might see some more announcements in the budget session. All this will mean an additional burden on the economy. Since the government has already exceeded its budget deficit targets in October itself, it will have to introduce measures to balance their expenditure. Also, the investors might hold on their money to wait till the result of elections are out.
The second quarter of 2019, will see the results of Loksabha elections, which will result in the slowing of growth rate, irrespective of whether the NDA or UPA comes to power. An initial month is generally a no work kind of period.
The economic system of India: The Impact of Global Slowdown –
Nomura Holdings Inc. has predicted that global growth will dip to around 2.8 percent in 2019 from 3.2 percent in 2018, led by a slowdown in China, and a moderation in the US and euro-area toward long-term trends. “As cyclical impulses become less favorable, we expect exports, manufacturing and the investment cycle to weaken” in India, Nomura analysts said.
The economic system of India: India’s Monetary Policy –
The RBI had raised the interest rates twice in the year 2018, so there are chances that it will take a neutral stance this year. With slumping demands and a dip in oil prices, inflation is expected to be average toward the RBI’s medium-term target of 4 percent in the first quarter of 2019.
The six-member monetary policy committee might even consider cutting interest rates in the first half of the year, according to some analysts. Shaktikanta Das, the new governor of the RBI, is seen as more dovish on monetary policy, saying inflation is benign and supporting growth is part of the RBI’s focus. His predecessor, Urjit Patel, on the contrary, took a more hawkish approach on price growth.