Report: India’s Macroeconomic Policy Locked in an Anti-Growth Trap
A Macroeconomic Analysis
To study the effectiveness of India’s economic policy, we sampled relevant macroeconomic variables for India over the last 30 years.
The data revealed anti-growth conditions. The average bank lending rate during the period of our study has been 14.32% and inflation has been consistently around 8%. Income disparity in India increased over the studied period. According to World Bank data, in 2009 India ranked 78th in the list of 134 countries.
We compared India’s monetary policy with other high GDP economies such as the USA, UK, Italy, Switzerland and developing economies like China and Brazil. Most of the developed countries managed to maintain low-interest–low-inflation combination for most of the years following 1990.
We suggest that a high interest rate policy is incorrect for India. Low interest rates have a stimulating effect on the economy because they make it more attractive to borrow and invest. Increased investments in profitable ventures will lead to increases in output and employment. Therefore, lower interest rates can help achieve faster sustainable-inclusive growth.
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