Economic recovery signals to a period of increasing business activity resulting in the end of a recessionary cycle. Prospects of Indian economic recovery have brightened after the formation of a stable Government. India is the second fastest growing economy with the World Bank projections of India's economy growing at over 6 percent in 2014-15 and 7.1 percent by 2016-17 as global demand recovers and domestic investment increases.
However, the path to recovery is not easy. The Indian economy is going through challenges which are translating into fiscal and monetary constraints. The economy is at a crossroad where it aspires to join the likes of the US and China as the world’s superpowers, but continues to struggle with issues like rising inflation, slowdown in investments, policy paralysis, child labour, dwindling sex ratio, malfunctioning education system, illiteracy, etc.
The relationship between growth and inflation has particularly been a subject of much research. In the past few years, India has suffered double digit inflation, which has weakened the growth rate. To control inflation, the Reserve Bank of India has regulated the monetary policy by adjusting the policy rates. An increase in the interest rate leads to curtailment of investment and employment resulting in a slump in growth. The tussle always persists between inflation and growth in any country. Thus, it is imperative to understand the importance of monetary policy in determining the inflation and growth in a large and open economy like India.
Another important agenda of economic concern has been the investment scenario. Whether to invest in developed or emerging markets is a much debated point amongst analysts with strong arguments on both sides. Faltering economic growth, slow political decision-making and a volatile currency contributed to a 21% fall in merger and acquisition (M&A) deals in India in 2013. Thus, it is important to understand if India will shape out in the investment sphere given the recent trends and the expected future scenario, 2014 being the year of change.
There is a need for industry centric reforms, optimum utilization of available resources for a speedy economic recovery. Moderation in inflation will ease the monetary policy stance and revive the confidence of investors. With the global economy expected to recover moderately, particularly on account of performance in some advanced economies, the economy can look forward to better growth prospects in 2014-15 and beyond.