Indian economy is considered amongst one of the fastest growing economies in the world. The nation has witnessed a burgeoning growth in its economy and it’s continuing to expand at a faster pace after introduction to FDI. India has moved from an agro-based economy to overall prosperity in all the industrial sectors. A lot of emphasis has been given on the development of industries, service sector and socio-economic infrastructure in India.
After independence, the country was economically backward. The self-sufficient village economy was mainly based on cottage industries and old handicraft items. But the current scenario of India’s economy has incredibly transformed into a well-developing and flourishing economy due to globalisation, increase in education and literacy, removal of poverty and implementation of science and technology.
The central as well as the state government have joined their hands in all the spheres leading to overall economic development. They’re focusing more on developing the rural sector as it possesses huge potential in economic terms. Government initiatives like Skill India, Make In India, Digital India, etc. are expected to bring more opportunities in the near future.
The manpower cost in India is relatively low and domestic market has developed strong consumerism. Education is growing rapidly inculcating strong technical and engineering potential amongst the youth. The higher growth trajectory of Indian economy insists that the country can reach the milestone of becoming the third largest economy of the world by 2030.
In recent times, India has witnessed major reforms in terms of economic diversification. Prime Minister Narendra Modi is leading the nation by putting effective efforts to boost the overall development of the country. The recent reforms have created huge impact on the economy.
Let’s learn about the unforgettable things that has happened to Indian economy recently-
Demonetisation is a memorable experience for the citizens of India. The government banned the use of Rs 500 and Rs 1000 denominations and disturbed the whole economy. It introduced a new denomination of Rs 500 and Rs 2000 eliminating Rs 1000 denomination permanently from the Indian economy. Nearly 90% of the total cash in circulation came back into the banking system.
Demonetisation transformed the economic scenario throughout the nation. It created a situation where lack of currencies jammed investment, consumption, production, employment, etc. Technically, it is a liquidity shock to the economy having a short-term effect. Let’s learn about the main impacts of demonetisation-
- Liquidity Crunch (Short-term effect)
Temporary removal of the old Rs 500 denomination gave a liquidity shock to the nation’s economy at the bottom level. Earlier, it contributed to nearly 49% of transactions but a slight crunch was experienced when it got banned. Local traders and small scale industries were majorly attacked by the liquidity shock.
- Welfare loss for the currency users
Most active segments of the population of India used cash to meet their transactions. Currency ban highly affected the people who used cash frequently. It included daily wage earners, small traders and labourers. Absence of liquid cash also affected their income. The poor working class of Indian population were stunned due to demonetisation.
- Consumption got hit
Liquidity shortage resulted to an adverse effect on overall consumption in India. The consumerism was highly deteriorated when the shortage stroked. When consumption goes down, the production also goes down. This results to shortage of employment in the manufacturing sector which lowers the growth and the tax revenue decreases.
- Loss of growth momentum
India had a higher growth trajectory which was temporarily shunned due to demonetisation. The growth momentum of the nation’s overall economic sectors was slowed down.
- Impact on Black Money
The government expected to gain a large amount of black money through demonetisation. In reality, only a little amount of black money was recovered by the government. Black money in the form of cash was recovered but physical assets like gold, real-estate, cars, etc. were the escapes for hiding black money.
- Impact on fake currency
India was going through a persistent problem of counterfeit currency rotation throughout the country. Demonetisation destroyed the whole system of counterfeit currency as the old currencies were replaced with new currencies. It not eliminated fake currencies but also carried out a cleaning exercise of unwanted obstacles in the path to economic sustainability.
Demonetisation has given short-term difficulties to the economy along with long-term benefits. Apart from destroying the counterfeit currency system in the country, demonetisation has enabled more transparency within the monetary system. It helped in reducing the volume of black money as well.
One of the biggest advantage of demonetisation is that people got aware about the cashless economy. Digital transactions are in huge demand and India is moving towards as a better economic nation with more convenience in transactions.
- Introduction to GST
GST stands for Goods and Services Tax. It is considered as the biggest taxation reform in the history of Indian economy. It will subsume multiple taxes like VAT, Service Tax, CST, excise and additional excise duty, entertainment and luxury tax, etc. It is a single uniform taxation system which will help in eliminating time, cost and effort.
GST will transform Indian economy turning it into one common market based on a uniform taxation system. It will enhance the ease of doing business in India. Industries will make big savings in terms of logistics and supply chain due to GST. Some companies will benefit more as the GST rate will be lower than the current taxation.
On the other hand, few sectors will have to pay more tax as GST will replace the old taxes uniformly, which may increase the rate respectively. It will begin a new phase in India’s economy by providing logistics and supply chain efficiency that the country requires the most.
- Impact of Global Trade Issues
Countries worldwide are growing protectionism in terms of economic inter-relationships. India’s import-export trade is highly affected due to major reforms in the mainstream regulatory framework. The World Trade Organisation (WTO) earlier projected an overall growth of 3.6% in 2017 which is now reduced to grow anywhere between 1.8% to 3.1%.
These global trade issues are having a huge impact on India’s economy. India’s export partner, the United States of America also witnessed a big reform when Donald Trump was elected as the new president. The U.S. is India’s single largest export destination of both goods as well as services. Trump presidency is expected to bring more strength in the trade relations with India.
Other global players like China, France and Germany are also showing signs of protectionism. India stands way behind them in global trade. There’s a need to overcome the recessionary conditions. India requires to build a better trade relationship with other countries.
- The upcoming price hike
The recent fall in commodity prices have benefited India over the past two years but things could change in the second-half of 2017. According to the assumptions of World Bank, energy prices may rise up to 25%, metals and minerals by 4.1% and prices of agricultural products will spin up by 1.4%.
A 25% increase in energy prices will be a huge burden for the Indian economy. India’s manufacturing sector requires energy as well as raw materials on a large scale. It will surely get affected by the energy price hike as well as the metals and minerals price hike which is expected to grow by 4.1%. India needs to brace itself for the upcoming commodities price hike.