The Indian economy has been on a roller coaster ride in 2016. From the exit of former RBI governor, Raghuram Rajan, to bidding adieu to Rs 500 and Rs 1000 notes due to Prime Minister Narendra Modi’s demonetization drive, India has had some monumental changes in this year. The sector-wise growth has been surprising, and the Gross Domestic Product (GDP) of India has been in the news for all the right reasons. There are reports of the Indian GDP overtaking the United Kingdom for the first time in 100 years. While the picture seems to be very rosy from the outside, it is important to know the complete story. As the year 2016 comes to an end, here is a flashback to three significant happenings in the financial sector in India. ALSO READ: New Year Resolutions 2017: These 6 resolutions will help you save more money in 2017.
1. Raghuram Rajan’s Exit
It is not every day that India takes an interest in the happenings of the Reserve Bank of India (RBI). However, Raghuram Rajan with his calm attitude and sensible and simple explanations made the RBI a common word for many. He induced an interest in the actual happening of the central bank and made everyone, young and old, aware of the going on in the banking sector. When this learned man announced his exit from the central governing bank and decided to go back to teaching in June, the entire country mourned. It is known that his stubborn attitude and clear point of view played a vital role in maintaining India’s inflation and interest rates at a stable state.
Raghuram Rajan’s planned rate cuts actually helped in improving the standard of living and his exit from RBI was apparently unexpected. While the current RBI governor, Urjit Patel, is trying to fill in the big shoes, Rajan’s charm and ease are still missed by many. Many economists are questioning the planning and execution of the demonetization, which has added to the negative limelight of Urjit Patel and the state of the country’s central bank.
2. Demonetisation in India
The night of November 8, 2016, will be marked as a day of utter bewilderment in India’s financial history. Never has the nation of 1.2billion managed to pull off such a huge project in such a short span. When Prime Minister Narendra Modi announced the ban on Rs 500 and Rs 1000 currency notes from midnight, the country was in a state of absolute shock and what followed was chaos. People began standing in long queues outside ATMs late at night and cars began to line up in petrol pumps to use up a few of the soon to be worthless notes.
The idea behind demonetization was to help bring out the hidden black money and finally put an end to the India’s long-term corruption woes in various sectors from the Indian government offices to the banking sectors. However, the ideology of this brave and bold step was lost in the haphazard execution.
The state of banks and bank employees was a different tale altogether. As bank employees strived to help the poor consumers and accept deposits through weekends, the citizens for the first time realised the value of liquid cash. This sudden decision of de-validating the denomination which was worth Rs 15.4 lakh crore was an effort to identify the undisclosed income that is still circulating in the economy. While an SBI report predicts that around Rs. 11 lakh crore worth of notes will be deposited in banks by the due date (December 30), the effects of the accounting of cash can only be seen with time. ALSO READ: Narendra Modi to address nation on 31st December 2016: PM’s surprise New Year’s Eve 2017 speech scares Twitterati beyond words!
3. Indian Gross Domestic Product (GDP)
The Modi-led government has made various efforts and promised to increase India’s GDP and help in the growth and development of the economy as well as betterment of every individual. While various efforts were made to help increase the investments made in India, with Make In India initiative and tax benefits for India-based manufacturers, the recent announcement of demonetization has taken a toll on the growth of various sectors over the past two months. As the government promises to bring back normalcy by December 30, one cannot help but wonder if the GDP target for 2016 will be met. This year already witnessed a lot of issues as droughts and floods affected the food productions and thereby the supply of raw materials.
The Gross Domestic Product (GDP) is a monetary measure of the market value of all final goods and services produced in a period. While a Forbes report states that Indian GDP has finally surpassed U.K. to become the sixth largest economy in the world, the GDP results in 2016 have still been below the expectations. A GDP of 7.4-7.6 is the expected average; the fourth quarter expectations stand at 6.60%.
GDP is an excellent scale to measure the worth of any country’s economy. Not meeting the target GDP in layman’s language is similar to failing to achieve your sales target and substantially slows down the economic growth. This fall in the GDP rate is again said to be the side effect of demonetization, and things will hopefully be brighter in the next fiscal year (April 2017- March 2018).
While these three events played a significant role in shaping out economic growth this year, the picture is not all that bad. As many economies struggle to make ends meet with soaring inflation rate, India is finally at a good place with goods becoming cheaper and the inflation rate finally being capped considerably.