The GDP growth of India is expected to moderate and it will be below 7% for the current financial year 2011-2012. The Indian economy had been doing well for some time and it was expected to do well in short terms as well but the changing international scenario and domestic problems in Indian economy has led to slowing down the economy growth trajectory.
On the international front, there US is still going through rough phases and even if all the positive indications, there is huge skeptics about the future of the US economy. On the same time European Union is going huge economic and financial crises and the existence of the same in danger as suggested by many economists and analysts. The emerging economies like China, Brazil and South Africa are also slowing down. These altogether are making things problematic for the economies.
On domestic front Indian economy is weathering even more tough conditions compared to the international fronts. There is consistent high inflation in economy, huge fiscal deficits for long time and far below the yearly targets, elections in five states that will increase fiscal deficits and more so the policy logjam at New Delhi. These are making Indian economy to slow down. The investors are losing hopes as the central government has failed many times to bring in required reforms in economy and financial sector to boost investment in the economy. High inflation has ensured that RBI to maintain high interest rates. This too is leading lower investment in economy. The social unrest in the country demanding for Lokpal has also played a crucial role in making economic indicators weaker. The industrial production also slowed down significantly.
The rupee has weakened against US dollar because of inflationary pressures. By the time India seemed to be growing, foreign investment was coming to Indian financial markets in form of portfolio investments but as the Indian financial market started performing below expectation and social unrest make the portfolio investors going back to safer markets like the US. This increased the outflow of capital from Indian shores and result was weak rupee.
These factors made things worse for Indian economy and result is that economy is slowing down.