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India’s growth may have macroeconomic costs

Wednesday, August 2, 2017

Subject

Indian growth is high but public debt is rising.

Significance

Despite evidence that demonetisation slowed the economy in the first quarter of 2017, India is likely to revert again to being one of the fastest growing economies in the world. However, India’s level of public debt is higher than in many other emerging markets while bank credit is slowing, threatening the country’s growth prospects.

Impacts

  • Central government will increase expenditure on investment.
  • The Reserve Bank of India (RBI) will be pressed to cut interest rates further, after today reducing the repo rate by 25 basis points to 6%.
  • India’s new Insolvency and Bankruptcy Code should help to ease the problem of bad debt and non-performing loans.
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