India's Economic Growth And Foreign Capital Inflow

Recently the rating agency, Fitch, slashed the GDP growth forecast for FY19 of the Indian economy.

- Kishore Kumar Biswas

The Fitch estimates put it at 6.9% from the 7.2% growth projected last December. It is not the only institution that has expressed doubts over the recent economic performance of the Indian economy. Many other are concerned about weakening manufacturing activity, low credit availability from banks and NBFCs, low farm income and weakening rupee value as against the major foreign currencies. The other main concerns have been the weakening domestic demand as well as falling non-oil and gold exports.

Ups and downs of Indian economy

The undergraduate students of economics are often taught that one of the most important factors for high economic growth of an economy is its rate of savings. The students of the 1980s and 1990s were taught that if India could save 20% of its GDP and if that could be properly invested then India could achieve economic prosperity expediently. On the other hand, it was also discussed that if India could save like China, India would attain the status of a developed country. But in a short period of time, India attained a high level of domestic savings (savings of households, corporate and public sector) - as high as 36% or even more in 2006 to 2008. In spite of that, India had invested more than 38% of its GDP in that period. The savings-investment gap was matched by inflow of foreign capital. The gap of savings and investments is generally matched by inflow or outflow of foreign capital. If investment of an economy is less than its savings, there may be outflow of capital to other economies.

GDP rise before global financial crisis of 2008