India has surpassed Britain to become the world’s sixth-largest economy. This brings about a paradigm shift in the world of economics as India has superseded Britian for the first time in well over 100 years. In the 18th century, when India was under colonial rule and Britain was witnessing the industrial revolution, the United Kingdom’s growth rate dramatically heightened and surpassed India’s. It was only post 1991, when India decided to embrace economic liberalisation that the country began to recover its growth rate. That laid the foundation for India’s steady incline on the graph.
However, the outcome of India becoming the world’s sixth-largest economy cannot be attributed to 1991 alone. In fact, it is the result of a coalition of forces that worked in tandem. Certain political developments in 2016, primarily Brexit, brought about the seismic shift in the economic sphere. Brexit – Britain’s severing move from the European Union caused the value of the Pound to plummet. It recorded a “20 per cent decline…over the last 12 months,” Forbes reported. The United Kingdom’s growth, however, has been projected by the IMF to be a mere 1.8 per cent. In 2017, it’s growth rate is expected to take a stronger hit and fall to 1.1 per cent.
In February 2016, it was reported that India’s rapidly mounting economy (predicted to hit 7.6 per cent in 2016 by the IMF) had outdone China. It was therefore recognised as the fastest growing major economy. The slump in oil prices too worked in favour of catapulting India to the forefront, helping it control the pace of its inflation. In March 2016, IMF India’s head Paul Cashin had mentioned, “The collapse in global oil prices is a large windfall gain for India. The windfall has made room for more spending on goods and services, helped improve the external and fiscal positions, and allowed a sharp decline in inflation.”
It would be naive not to acknowledge how Narendra Modi’s election as the country’s Prime Minister 2014 considerably affected the global market. Under the ‘Acche Din’ (good days) banner, he promised to shepherd in mammoth foreign investments and introduce strong goods and sales tax reforms. In 2015 the Telegraph reported: “The country’s benchmark Sensex index has been on a Modi-fuelled bull run, soaring 30pc since his Bharatiya Janata Party (BJP) took office with the largest electoral majority in three decades.”
It is necessary, however, to consider the consequences of demonetisation, which will reflect heavily on India’s economic growth in the coming months. Dr. Manmohan Singh, former Prime Minister of India and a veteran economic expert, had vehemently dismissed demonetisation, arguing that the country’s GDP would see a downfall of 2 per cent – a prediction he felt was an under-estimate. A Mumbai-based equity research firm, Ambit Capital had projected that demonetisation would lead the GDP to dramatically fall to 0.5 per cent in the second half of the financial year 2016-17. “This means the GDP growth for six months, from October 2016 to March 2017, could decelerate to 0.5 per cent, down from 6.4 per cent in the previous six months,” Ambit’s economists said in a note reported in Forbes.
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