Sustaining growth and improving living standards

India has enjoyed one of the highest growth rates in the world in recent years, propelled by strong business investment. India was not immune from the global financial crisis but experienced a relatively mild slowdown, despite a severe drought which hit agricultural production. The recovery was driven by strong domestic demand, supported by expansionary fiscal and monetary policy, and growth has returned to a high trajectory. Prudent macroeconomic policies will be critical to prolonging the current expansion, given risks surrounding inflation, which has been high, and volatile capital flows. A steadfast commitment to fiscal consolidation is needed to continue to reduce the large deficit that emerged in the aftermath of the slowdown. Continued structural reforms will also be necessary to maintain high growth over the longer term. The operating environment for private business remains challenging compared with many other countries. While infrastructure is improving in key sectors, partly thanks to greater private investment, bottlenecks threaten to constrain the economy and efforts to intensify competition and ensure continued strong investment are required. Rapid economic development has boosted living standards and reduced poverty but the number of Indians living in poverty remains high. There is a need to strengthen social welfare systems and access to health and education to ensure widespread benefits from continued high growth. Labour market reforms are also required to promote job creation.

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