growth patterns altered the structure of the Indian economy with a decline in the share of agriculture from 28.4% to about 15 per cent in 2009-11. There was an increase in services, including construction, from 52% to 65%. The share of industry has remained unchanged at around 20 per cent of GDP.
The growth acceleration was accompanied by a sharp lift up in the rate of growth of gross fixed capital formation which had more than doubled from an annual average of 7.2 per cent in the 1990s to 15.7%.
The structure of Indian economy also underwent a change. Exports and imports of goods and services have more than doubled from 23% of GDP to 50 per cent in 2011.
The high growth was achieved in an environment of price stability as headline wholesale price index inflation dropped to an annual average of 5.5% in the 2000s from 8.1 per cent in the 1990s. Subsequently, in the post-crisis period the inflation trend has reversed with the headline WPI inflation averaging over 7% and the consumer price inflation crossing double digits during 2009-11.
The uptick in food price inflation was particularly sharp during 2009-11.
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India has launched wide ranging structural reforms and has made noteworthy economic progress over the past two decades. Some of them are:
India's industrial environment has become more competitive and open
Infrastructural gaps have been sought to be bridged through public-private initiatives with both domestic and foreign sources of funding
Current account has become fully convertible while capital account which is virtually free for non-resident.
As interest rates deregulated, banks gained operational autonomy for commercial lending. If India could maintain the current pace of growth it will elevate millions out of poverty and augment the global economy. While India has come a long way, maintaining the current pace would itself be challenging and require continued reform efforts.
India will continue to face "stagflation-type" situation for some more time. The main reason for this are:
the government's loose fiscal policy and persistent strong rise in real rural wage growth without an increase in productivity growth
Stagflation means when economic growth of a country stagnates while inflation is rising. RBI lowered the economic growth projection for the current fiscal to 6.5 percent from its earlier estimate of 7.3 percent, stating rising government expenditure poses risks to economic stability.
Its inflation forecast for the fiscal ending March, 2013 has also been raised to 7 percent from earlier projection of 6.5 percent. According to reports, monetary policy has a limited role in this stagflation-type environment. Moreover, the inflation outlook remains challenging. Indeed, given the poor progress of the monsoon, in reality food and overall inflation will likely accelerate in the coming months.
Measures to control Indian stagflation:
India may have progressed on paper and on
