Indian Growth: A Review of the Macroeconomic Challenges

The GDP growth acceleration has constituted an essential feature of Indian economic history of the last four decades. However, the slowdown of the Indian economy from early 2010 onwards raises questions on the country’s capacity to sustain levels of growth closed to those recorded before the international economic crisis. We here propose a quick review of macroeconomic challenges that Indian economy has to face.

The analysis of macroeconomic vulnerabilities of growth appears satisfactory on the whole. Low level of external debt, high level of official foreign exchange reserves, and the stability of the banking system are especially reassuring. However, the country’s ability to keep the investment rate growing will probably be an important determinant of country’s future economic growth. In this respect, the low level of government resources and limited access to long-term resources could be real constraints. Moreover, the demographic window of opportunity from which India could benefit in the next 20 years, requires that the country create sufficient jobs. One must hence keep in mind that maintaining high levels of growth in the future could turn out to be more challenging than in the past.