Over the past year, many have expressed concerns over whether or not India could sustain their relatively high growth rate – and what the consequences might be should things turn sour. So far this year, things haven't changed and India continues forward with a forecasted economic growth rate of 8.34 percent. The Indian government understands the challenges presented with sustaining this growth while ensuring a stable infrastructure and other fundamentals are taken care of in avoidance of a market collapse like the one that hit the US.
With initiatives to create more jobs, and maintain nationwide financial stability, reaching that 8.34 percent growth rate is a very attainable goal. Last Monday the International Monetary Fund (IMF) stated, "India's favourable outlook has attracted record capital inflows, which help finance investment but also present challenges to managing capital markets integration."
The nation's economy has certainly been resilient in light of the past year's global uncertainties, the slowing US market, and generally higher oil prices. The primary reason for the forecasted 8.34 percent growth in 2008 is due to higher productivity and continued influx of investment.
There are a number of IMF directors have expressed some concerns over whether or not rupee appreciation has affected India's competitiveness in primarily labour-intensive areas. There were also a surprising number of directors who emphasized a need for caution against restricting capital inflows. The concern is that there are other methods available such as increasing exchange rate flexibility, which would prove to be more effective in a financially open environment such as India at this time.
The IMF, however, did commend the Reserve Bank of India's (RBI) renewed focus on maintaining financial stability in ways such as monitoring banks' risk management processes. Although the overall soundness of India's financial system was commended by the IMF, they also stressed the need for continued examination of economic indicators for any signs of a downturn.
