Indian economy is slowing. 2012 has not been the best year for agriculture – the largest of the 3 economic sectors and industrial output is also declining. Slowdowns in United States and Europe have lowered the growth of the Indian services sector as well. The finance ministry and the Reserve Bank of India must balance between reviving growth and containing inflation.
Food prices have gone up because of the weather-related jitters in the agricultural sector and so have energy costs. The decline in industrial output can be attributed to electricity scarcity and to government policies targeted to ease the stress on resources and, hence, on prices and inflation.
Agricultural output must be safeguarded from weather-related fluctuations by employing more resilient techniques. India must significantly expand the energy and electricity industries to avert scarcity and to alleviate the upward pressure on their prices. Solar and clean coal power plants and substantial revamp, expansion and modernization of India’s vast road and rail intra and inter-city networks will raise industrial output. Electric automobiles must be encouraged.
The services sector must expand locally and globally to adjust to outsourcing concerns abroad: India’s large information technology (IT) firms must compete both abroad and at home with foreign multinationals for business in both markets. India has considerable IT modernization of its own to accomplish at home, opening up a vast domestic market for both Indian and foreign IT firms.
Aadhaar-based unique identification social safety net is a necessity for poverty alleviation.
As suggested above, if done as public-private fiscal-monetary initiatives, India’s potential growth rate will rise and, therefore, will not raise inflation.