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India is growing at a massive rate as the number of skilled labour is growing gigantically. This fuels the economic growth as more monies enter the market in the form of taxes, investment loans etc.
However inflation is one aspect that is leading to the economy weakness of India. Surprisingly this year 2007 it dipped to 5.1% in May from the escalated 6.7% close to the estimate of 5% what the RBI had calculated. The rise in inflation is due to the inequalities in supply and demand. Demand is always outfacing supply and this puts the market out of track with increase in prices of special commodities and thus inflation.
In comparison to China, the inflation rate is as low as 3%. Although its interest rates remain lower than India. However it is able to control the inflation rate through sterilisation. In this process it sterilises the impact of money on reserves, while its central bank pays a meagre interest of 2% on bills that local domestic banks are made to purchase. On the other hand it earns a handsome amount on the American Treasury bonds, hence it is in profit and sterilisation is a profitable measure.
In India with the increasing deficits in the yearly income from the government and the high rate of interest it has to pay the banks, the debit does not offset the credit from the American Treasury bonds hence sterilisation of monies is not a profitable resource.
However with the burgeoning workforce the GDP is said to gain momentum in the next decade. This 2007 itself it GDP grew by 9.4%, the best ever in the past 18 years. While the current price of GDP in India is said to overtake Italy and France by 2020, other European countries like Germany, UK by 2025 and by 2035 Japan. By then it is expected to be the third largest economy following US and China.
By 2025 India’s growing economy will be about 60% of America’s and hence making it the 3rd largest economy. If it works equally harder within a decade it can overtake the UK’s GDP contribution. But then again it has to measure its worth within the country. Reduce the pressure on agriculture and give it more benefits, as around 40% of the income is lead by agriculture. Various other industrial and residential reforms along with a reduction in house renting rates have to be reduced to bring more satisfaction to the common man and indirectly healthy economic growth.
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