India’s economic outlook for 2025 has taken a hit as Moody’s Analytics revised its growth forecast downward to 6.1%, trimming 30 basis points from its earlier projection.
This revision comes amid escalating trade tensions triggered by newly imposed US tariffs. The US administration, under President Trump, initially announced punitive duties ranging between 24% and 46% on a range of Asian economies, including India. Although a temporary 90-day pause has reduced the rate to a flat 10%, Moody’s cautions that the economic consequences could be significant if the original measures are eventually enforced.
The downgrade reflects the rising unease surrounding the international trade environment. It is the impact of this unease that is far-reaching, as voiced by Moody’s, and it is affecting the country in ways we have not quite noticed yet. To point out the obvious, when investors are uncertain, they pull back from investing in the markets. This is creating a ripple effect across all kinds of assets, with resentment seeping into the trade corridors.
Policy Adjustments and Domestic Demand Cushion Impact
To mitigate any potential fallout, the Reserve Bank of India (RBI) has acted ahead of the curve. On April 9, the central bank cut the repo rate by 25 basis points to 6.0% and changed its stance from neutral to accommodative, which means it is now signaling an openness to further rate cuts. Analysts see at least one more 25 basis point cut coming this year, which would give us a nominal policy rate of 5.75%.
This monetary easing, coupled with the tax incentives introduced in the recent Union Budget, is expected to support a recovery in domestic consumption, which is now our best line of defense against the sort of external shocks that seem to be in prospect.
Though sectors such as textiles, medical devices, and gemstones are under pressure, India has a very low reliance on global demand. This is the underlying reason for not revising the country’s growth forecast. Moody’s prediction is that India will grow at 6.1 % in 2025, with its baseline forecasts from 2024-2028 remaining steady.
Short-Term Challenges, Long-Term Opportunities
Although the temporary halt in tariffs offers short-term relief, the course ahead is still not clear. Talks between the two sides, under the auspices of the last round of bilateral meetings between USTR (The Office of the United States Trade Representative) and Indian commerce officials, could yet reshape both the duration and the reach of the new tariffs. The decision by the US to extend the 90-day pause, which is the first such move since the onset of the trade war in 2018, looks to be particularly crucial.
The broader context encompasses a worldwide deceleration and diminishing domestic impetus, which together complicate fiscal and economic planning. Yet, in the face of these difficulties, opportunities might arise. Stricter US trade policies could redirect global supply chains, possibly placing India in a more advantageous position in crucial sectors like electronics.
For fiscal year 2024–25 (FY25), the IMF increased India’s growth prediction by 20 basis points (BPS), bringing it up to 7% from 6.8%. The improvement in private consumption, especially in rural India, is the reason for the improvement in the growth projection, according to the International Monetary Fund’s (IMF) World Economic Outlook (WEO).
The International Monetary Fund (IMF) revised its GDP growth prediction for India up from 6.5% in April to 6.8%. The UN’s international financial agency maintained its projection for the 2025–26 fiscal year (FY26) of 6.5% growth in the GDP of Asia’s third-largest economy.
The International Monetary Fund also noted that its earlier projection for global economic growth in 2023 was 3.3% and that its current forecast for this year is 3.2%, both of which are unimpressive. Prior to the pandemic disrupting economic activity in 2019, global growth averaged 3.8% annually.
Optimism for Global Growth Curbed; Downgraded US Projection
As a result of slowing US activity and a dropping out in Europe, the world economy is expected to have modest growth in the coming two years. The International Monetary Fund has issued a warning about the slowing down fight against inflation, which could lead to a postponement of interest rate cuts and the maintenance of strong dollar pressure on emerging countries.
Although it increased its 2025 prediction by 0.1 percentage point to 3.3 percent, the International Monetary Fund maintained its 2024 forecast of 3.2% global real GDP growth unchanged from April. Forecasts fall short of preventing growth from plunging into “the tepid twenties,” as warned by IMF managing director Kristalina Georgieva.
Inflation is predicted to continue falling globally, from 6.7% in 2023 to 5.9% this year and 4.4% in 2025, after spiking to 8.7% in 2022 due to the fast recovery of the global economy from the pandemic recession. As a result of the first quarter’s disappointing performance, the International Monetary Fund lowered its growth prediction for the United States for this year from 2.7% to 2.6%.
Service prices stayed high due to wage growth in the labor-intensive sector, and the International Monetary Fund (IMF) cautioned that inflation could rise in the near future due to increased costs of imported goods caused by rekindled trade and geopolitical tensions.
GDP Projections for India and China
According to official statistics, India’s GDP expanded by 8.2% in FY24. Both 2022–23 and 2021–22 saw economic growth of 7.2% and 8.7%, respectively. During its most recent monetary policy meeting, the Reserve Bank of India (RBI) increased its GDP prediction for FY25 from 7% to 7.2%.
This year, the International Monetary Fund raised its growth prediction for China to 5% from 4.6% in April, although it fell short of 5.2% in 2023, in part due to a spike in Chinese exports in early 2024.
Prior to the release of Monday’s (July 15, 2024) data, the world’s second-largest economy—China—had expanded at a slower-than-expected 4.7% annual rate from April through June, down from 5.3% in the first three months of the year. This was before the IMF prediction was made public.
China has been one of the world’s leading economic powers for almost two millennia. Until the late 1700s, it accounted for approximately one-quarter of the global GDP (Gross Domestic Product). By the time the industrial revolution was beginning in Great Britain by 1820, China was accounting for approximately one-third of the global GDP. These numbers factually reflected that China’s GDP at the time was six times as large as that of Great Britain.
Under the leadership of Deng Xiaoping, the Chinese government began introducing economic reforms in the year 1978 which resulted in the country becoming the fastest-growing major economy in the world. China registered an average growth rate of 10% over the next 30 years. Its sustained growth rate could be attributable to its export relationships, its large-scale manufacturing sector, and the country’s low-wage workers.
As one of the largest economies in the world, the country was successful in avoiding the global economic downturn due to the Covid-19 pandemic. However, in the year 2022, it posted one of its worst economic performances in decades because of the pandemic.
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion. This amount was equivalent to around 45% of the country’s GDP. The off-balance sheet debt of Chinese local governments, as per the Standard & Poor’s Global rating, was amounting to approximately USD 5.8 trillion while the International Monetary Fund said that the debt owned by the state-owned industrial firms was another 74% of the total country’s GDP.
According to Forbes, at the last measure, China’s debt of all kinds – public and private and in all sectors of the economy – amounted to a staggering USD 51.9 trillion, which is almost three times the size of China’s economy. Since the time Beijing first began tracking such statistics, twenty-seven years ago, this amount is the highest level of debt recorded.
The Beijing-backed National Institution for Finance and Development has stated that local authorities are set to issue a new debt amount of approximately USD 570 billion for the next year. This precarious situation of China is further highlighted by its comparison of relative debt to the United States. By mid of the year 2022, China’s national debt was 40% higher than that of the US.
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits. It is incurred especially to maintain government services during a recession when tax revenues decrease and government expenditure increases. Government debt is also created to cover costs from major shocks like a war, a public health emergency, or even a severe economic downturn.
Reasons for China’s Increasing National Debt
In previous years, China had successfully managed to keep its national debt lower than the US. This was possible due to the policies that were introduced by the state. The national debt of China had usually been held by domestic institutional investors, in particular state-owned banks. The investment and lending practices of these banks supported government policies like issuing bonds for infrastructure investments and insurance companies.
However, in the last few years, the country has seen a consistently increasing national debt that has included government spending on development projects and slowing economic growth. The global financial crisis in the face of the covid-19 pandemic caused the state to inject more credit into government-owned enterprises. At the same time, Chinese authorities eased the way for companies to secure loans to restart the economy. This further increased the burden of debt on the country’s economy.
China’s Local Government Debt Crisis Explained
Impact of High National Debt on the Chinese Economy
China’s financial system is not entirely transparent. This is given rise to concerns about the amount of actual debt that is being held by local governments and state-owned enterprises. Other related concerns are also highlighted like the risks associated with high-level borrowing and the overall debt of the country. Having said that, China is hopeful of ambitious economic growth due to its heavy investment in infrastructure projects. The economy has also taken proactive steps towards a consumption-driven growth model, although, it is yet to yield results.
Despite the shadow that is cast on China due to its growing national debt, analysts remain optimistic about the country’s long-term prospects. They remain positive that although this will slow China’s ascent, it won’t derail the economy entirely.
Conclusion
The debt situation of China is set to grow further. There are two notable and significant issues impacting it. One is its demographic challenge with over 60% of the country’s population either retired or nearing retirement age. The second big concern is the country’s shortage of young workers which supports a growing aging population due to its decades-long one-child policy. This situation within the country is likely to continue for the foreseeable future and the country will rely heavily on debt to fulfill its social security pension obligations.
FAQs
What is the current debt of China?
As of the year 2020, the national debt of the People’s Republic of China stood at an approximate amount of USD 7 trillion.
What is National Debt?
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors. The amount of the national debt of a country represents the past annual budget deficits.
After 75 years of independence from the British Raj, India has emerged as the fastest-growing and fifth-largest economy in the world. By the year 2020-2021, India’s per capita income has increased to INR 1.28 lakh. By August 2022, the country’s Foreign Exchange Reserves amounted to USD 572.97 billion and its GDP (Gross Domestic Product) rose to USD 3.5 trillion. India aspires to reach a USD 5 trillion economy by the year 2024-2025.
At the end of the 1st millennium BC, India was one of the largest economies around the globe which ended around the beginning of British rule. Under British rule, India experienced decentralization as well as the cessation of various craft industries. This coupled with accelerated economic and population growth in the west led to a steep decline in India’s share and by independence, the country’s GDP had been reduced to a mere 4.2%. India’s global industrial output also reduced from a towering 25% in the 1700s to a mere 2% in just a little over 200 years. The British left India in dire straits, dealing with a collapsing economy, poverty, high inflation, and an utter state of confusion.
Post-independence, India adopted five-year plans concentrating on centralized economic and social growth programs. The first five-year plan focused on agriculture and irrigation and aimed to boost farm output and the second, launched in 1956 advocated rapid industrialization with a focus on heavy industries and capital goods. However, this caused the funds to be taken away from the agricultural sector leading to food shortages and inflation. In the 1960s Indian economy was worsened by the wars with China and Pakistan and the political instability within the country. This led to the devaluation of the Indian Rupee. Then, a little over two decades later came the oil crisis in 1991 resulting in a balance-of-payment crisis for the country. The global economic crisis of 2008 left the Indian economy deeply scathed and the country’s fiscal deficit rose to 6.4% of its GDP in 2009-2010.
However, two economic events that have assured a place in history were the demonetization of 2016 and the implementation of the Goods & Services Tax (GST) in 2017. Demonetization was aimed at flushing out black money and striking out corruption and the introduction of GST introduced a uniform tax rate across all states paving the way for easier compliance.
Current Economic Status
Since the beginning of the 21st century, India’s annual average GDP growth has been around 6% to 7%. Between the years 2013 and 2018, India surpassed China and became the world’s fastest-growing economy. The country is the third largest unicorn base globally, being home to 100 unicorns that are collectively worth USD 335 billion. The country is also the third largest by PPP (Purchasing Power Parity) with an estimated USD 11.75 trillion.
The country currently has strong economic fundamentals and is well on the road to becoming a USD 5 trillion economy. Various factors are working in favor of the country. These factors are –
Diversified Economy
India enjoys strong trade relations with many other countries. Its economy is well-diversified with healthy roots.
New Technology Adoption
In the past few years, India has quickly adopted newer technologies, especially in the manufacturing and financial sectors. This has led to higher quality and reduced production costs driving profitability. It has also led to increased investment in innovation.
India’s Gross Domestic Production
Increasing Off-Shore Opportunities
As devastating as the effects of the covid-19 pandemic were, it has favored India, as the working culture shifted to remote teams. This led to developed nations finding it more cost-effective to work with people living in India.
Young Average Age Population
India’s youth population is the largest globally at approximately 356 million. This represents a high 64% working population that contributes to the country’s growth in GDP and per capita income. It also presents a high consumer base for companies to thrive and grow.
Shift to Renewable Energy
India’s dependency on energy imports has lessened considerably with almost 40% of the country’s installed electricity capacity coming from non-fossil fuel sources. This has reduced operational costs for businesses and individuals.
How India Will Take Over the World Economy In 10 Years
Challenges & Obstacles
India’s fast growth has persisted even in the face of the globally crippling pandemic coronavirus. The country, however, is facing several challenges on the path to becoming a USD 5 trillion economy.
Supply Chain Bottlenecks
Developed economies resorted to distributing cash to households to combat the debilitating effects of the pandemic. The supply-chain bottlenecks resulting from the pandemic have also not eased. These have led to soaring inflation across the world, which is exacerbated by the ongoing Russia-Ukraine war.
Interest Rate Increase by the Federal Reserve
The Federal Reserve has increased the interest rates to combat rising inflation. However, these threaten economic growth and may cause ripple effects within India.
The ongoing war between Russia and Ukraine has led to a severe energy crisis in the European Union. This acts as a growth inhibitor.
China’s Covid Policy
At one time, leading the global economic growth, China has continued to announce restrictions due to its zero-covid policy making international trade difficult.
Conclusion
India’s growth is unprecedented and its march is strong and sure. However, challenges like generating employment, curbing inflation, increasing foreign direct investment into the country, and maintaining macroeconomic stability must be successfully dealt with to make a USD 5 trillion economy a reality.
FAQs
How does the Indian economy compare to other economies in the world?
India is the world’s fifth-largest economy by nominal GDP and the third-largest by PPP(Purchasing Power Parity).
What are the key policies and initiatives taken by the Indian government to boost economic growth?
The Indian government has implemented policies such as Make in India, Atmanirbhar Bharat, Digital India, Start-up India, GST, FDI liberalization, Pradhan Mantri Jan Dhan Yojana, and Swachh Bharat Abhiyan to boost economic growth and development.
What is the role of foreign investment in India’s economic development?
Foreign investment has significantly contributed to India’s economic growth by providing capital and technology, improving productivity, and creating jobs. The Indian government has implemented policies to attract foreign investment, which has increased exports and skills in various sectors.
What are the main sectors driving economic growth in India?
The main sectors driving economic growth in India are services, agriculture, and manufacturing.
You can hardly predict some cancers before it grabs the whole body to an extreme stage. Basically, hyperinflation is a wolf under the sheepskin. The news, the experts, the cunning industry, and even the government may hide the truth to protect the aftermath. Many companies employ a widespread technique to convince the consumers that costs are stable, even though you’re paying more for less weight with the same packaging. Hyperinflation is a negative catalyst that may act slowly but steadily to summate long-term accelerating inflation. So, we will go through 7 case studies of hyperinflation-affected countries of all stages (growth, maturity, and decline) in the economic graph.
Hyperinflation is a terrible stage of uncontrolled inflation with a sustainable panic of supply shortage despite paying more. A country has to face the problem when it has enormous national debt, declining foreign reserves, and long-term political uncertainty. In external events, such as war, and lack of global confidence in the economy, worldwide pandemics push the problem to a negative slope. A government will fund its reaction to the crisis by taking on debt, but it can’t afford services and releasing additional money in the market to make up the difference. Twitter co-founder Jack Dorsey’s tweet at the end of October 2021 fuelled the panic of hyperinflation across the US amid the tough time of the pandemic.
Global Inflation Rate from 2016 to 2021
Countries that Faced Hyperinflation
Hyperinflation is a dreadful state of condition for any country. The following are some prominent countries that faced hyperinflation and the reasons behind them:
Russia
The world’s second-largest arms and crude oil exporter, Russia is heading towards significant inflation, possibly a burst into hyperinflation. The economic data coming out during the Ukraine invasion is not very healthy. Apart from the war, the Kremlin is fighting with an internal three-point trap triangle of (hyper) inflation-pandemic sanctions. As per reports, the Russian regulatory bank called CBR raised the interest rate by 20% to save the ruble from the western red eye of sanctions. As a result, the ruble tanked at a record low of 25% this March.
Amid fear of losing oil and arms export hegemony, the country faces isolation from the West and the US. Investors are trying to get into a safe escape. Many billionaires shut down their business operations as a protest. The economy is being drained of cash. One month down the line of conflict, Moscow enrolled with 3.5 lakh Ukrainian refugee shelter houses, and inflation zoomed up 15.66% this March-end, expecting a 20% fear of inflation in this financial year as per a central bank survey. SWIFT system and payment card firms are ceasing operation in Russia, which is a significant setback for the country. The CBR is struggling to control capital outflow( movement of an asset out of a nation), escalated by the record-long shut down of the Moscow exchange.
Moscow’s financial advisors have shown public confidence to revive their internal banks with additional reformation. It will take some time to confirm the post-invasion period Russia copes with the odd or cross the red inflation line to join the hyperinflation club. Though, as per experts, it has intense symptoms of hyperinflation.
Russia’s Ukraine Invasion
Iran
In March 2022, the Statistical Centre of Iran (SCI) reported an annual inflation rate of 40.2%. The Islamic Republic owned 10 % of the world’s oil, 15-17% of its gas reserves, and 7% of its minerals. So then, why is Iran also sinking towards hyperinflation? Literally, Iran has everything for cooking except the cook!
Weak diplomacy also pushed EU and US sanctions on energy, tech, financial service, and foreign trade. Iran’s president asked its central bank to stop releasing data as it is higher than the SCI tally. Diplomatic gaps weaken the trade deficit.
The country is suffering from basic needs like water. Protesters rioted in Tehran’s streets, resulting in deaths and arrests. The country is accused of state-sponsored disinformation, a dangerous trend to hide the disease rather than treat it.
A silver lining of hope is raised after the US Congress gets its new president from the democratic party in January 2021. Iran is trying to get the Indian market oil with a rial-rupee deal. The US-Tehran has shown some positive signals of melting down relations with the nuclear deal ahead of the Russia-Ukraine war.
Turkey
Ankara crossed the 50% inflation red line and entered the hyperinflation zone with a 54% index as of March 2022. Despite president Recep Erdogan’s battle with the recession, the Turkish people have not achieved a new normal since 2018. His equation to fight inflation is lowering the interest rate. Unfortunately, his flawed policy slipped the currency lira to a loss in the last year. The uncontrolled depreciation of the lira has created a hugely detrimental impact on the economy. There has been a certain increase in the exports, but the following adverse consequences are more than the actual gain:
The significant drop in purchasing power is the result of devalued currency; the salary class people need to pay more lira for the same or less product. Therefore, the loss of purchasing power is a severe impediment to economic growth.
To minimize the inflation risk, Turkish banks have stopped encouraging lending to ensure less money in the market. It has no option when they are unable to raise interest. In the long run, it has an even worse effect on increasing the country’s brain drain. Foreign currency is taking a break, and investors are rushing out of the country. This leads to job or employment problems at worst.
The civil war inflicted on Lebanon’s lira is losing the battle and ending in triple-digit inflation of 215% in front of the US currency. It is enough to cripple the retail, health, transport, and fuel sector investment. With 78% poverty, the country is trying to get a good deal from the IMF. But the corruption grappled the country at such a deep level that its central bank had to face inquiry and slap from the lawsuit. The United Nations confirmed that the Ponzi scheme was a major red flag behind the economic meltdown. Beirut tried to reshape its economy with tourists to the Gulf help. But in 2011, the neighbouring Syria unrest put the country in financial collapse again. In the meantime, the Hezbollah-Iran tie miffed some major gulf countries.
The fall of money was fuelled by the central bank’s direct financing of the government’s public deficit during the civil war. As a result, money has entirely lost its essential rules and everything that made it a reliable store of value. The Govt, despite a defaulter of foreign debts trying to survive with the help of the World Bank and IMF. Another good news is, recently, the new Lebanese govt got a ‘positive outcome’ certificate from the Saudi kingdom. Hope it will improve their credit pipeline.
Sudan
After a military coup, riot, and political uncertainty, the East African nation is more chaotic; debt-trapped Sudan announced it would float its currency as economic conditions deteriorated. According to United Nations officials, Sudan’s food crisis is expected to drop due to the African country’s economic collapse, displacement, and ruined harvests. After the military took over the US, IMF and World Bank suspended their million-dollar aid and SDR (special drawing rights of IMF). Another setback is that the separate region of South Sudan holds 75-80% of oil production in the Upper Nile state.
Since 2016, the country has faced a lopsided economic downturn, covid and coup pushed it on the verge of catastrophe. With the shrinking GDP of 2020 by 3.6%, the country summed up the cycle and added a 359% inflation rate. World food program data warned that about 5.8 million people suffer food shortages and malnutrition. In the current scenario, the political paralysis of Sudan is a significant issue of hyperinflation and food shortage. Moreover, it blocked the foreign fund in the African nation.
Inflation among countries
Zimbabwe
Are you fed up with hearing about hyperinflation in different countries? Here is Zimbabwe for you with a ray of hope. The government had robust growth of 838% inflation in July 2020, and now, there is a significant drop at 50% in August 2021. During this challenging time of pandemics, war, and sanctions, it is not easy to revive the economy from hyperinflation in such a short period. Chronic symptoms of hyperinflation are coming out like lower growth, hunger, a debt-driven economy, low income, jobless youth, and collapsing health sector. It was not fun when the African bread bucket turned half of the population into a beggar.
It was a tough time for the drug-addicted, debt-ridden country when it was announced as having the highest inflation rate in 2019. With a fast depreciating currency and hyperinflation nearing 800%, most commoners watched their hard-earned money turned into a paper bunch. The country suffered 90% unemployment which coerced University graduates to sell vegetables in the market. The confused Reserve Bank of the country introduced a bond note with a 1:1 value against the dollar, but the market doubt was fainting its importance rapidly. In 2019, the Reserve Bank announced RTGS$ and banned foreign currency in domestic transactions.
Pandemic norms encourage digital payment worldwide, and it was reshaping the economy of Zimbabwe. It pushed the RTGS to POS transactions. EFT(Electronic Funds Transfer)and the Card payment system showed robust growth in 2021. Thus, it saves money printing the ‘need’ of a hyperinflationary economy. The rural part also enjoyed financial inclusion (finance access to the poor class), and the govt can track them with the tax system. The untapped section is directly under the payment system. Online transaction access to the internet among youth generates various business ideas worldwide. Bitcoin and crypto came to the discussion table of policymakers.
Venezuela Inflation Rate as Compared to Previous Year (by Statista)
The South American Country seems to be the king of the hyperinflation kingdom without any competitors nearby. In 2018, it reported 65,374.08% inflation, which means people need to carry money in a car dicky for daily retail shopping. A bunch of cash becomes useless in the economy. In the same year, 48k teachers left the country (remember, they are not sacked) to relocate to neighbour-based countries for livelihood.
There was a mass exodus in the middle of 2018. About 4 lakh people left the country, and it was not for armed conflict but terrible hyperinflation. Among the country’s top human resources, doctors, professors, and IT professionals were fleeing the country, leaving unfilled posts. The country faced mass blackouts, and people used candlelight or cell phones during an emergency. The country dried out of medical supplies and doctors; patients had to wait for half a year for an emergency operation.
Critics blame policies of socialism. Experts accused the country of suffering from printing money and a fiscal deficit. Once known as the giant supplier of crude oil, the comfort of the oil zone hit back Venezuela in 2014 after oil prices fell continuously. Since 2014 the country has shown a significant drop in GDP in negative growth.
There is a thin sign of revival in 2021; Venezuela reported a surge of the foreign reserve by $5.1 billion. The country’s central bank claimed to curb inflation by ‘only’ 686% for the same year, a great short-term relief.
Conclusion
Here we did not consider the crisis-hit Sri Lanka or war-torn Ukraine. Moreover, since August 2021, Afghanistan has been out of the internal statistical audit.
Therefore, there is a high possibility that the hyperinflation club will get new members. On the other hand, controlling hyperinflation is far more difficult due to the enormous political cost of the typical solutions. In reality, one reason that can turn inflation hyperinflationary is the populist administrations, which are being trapped in a situation where they cannot make practical efforts to reduce inflation.
It is better to control it in the inflation stage. So, the policymakers or government need to take some bold and reformative steps to prevent the money flow in the economy. It also needs diplomatic efforts, so that the countries can avoid printing $100 trillion notes like Zimbabwe.
FAQs
What is hyperinflation?
Hyperinflation is extremely high and rapidly increasing inflation. It is said to have occurred in an economy when the prices rise over 50% in one month due to economic disturbances and depression.
What causes hyperinflation?
The main causes of hyperinflation include:
High National Debt
Price control that leads to an increased shortage
Economic output decline
Lack of faith in government
Which countries are facing hyperinflation?
Venezuela
Sudan
Lebanon
Iran
Zimbabwe
What is a healthy inflation rate?
A healthy inflation rate is 2% which is considered good for economic growth as in this situation, people are more likely to make purchases in the present rather than wait when they expect prices to rise.
The world has about 775 crore people living on its surface. If you look at the population graph, you will notice a straight line facing the sky. The rate at which the population is growing makes a steep graph.
The world is divided into continents and countries. Most people live in china. China is the most populous country in the world. In fact, China has been the most populous for a long time now. When we write ‘for a long time, it means centuries. The first census showed the Chinese population at 583 million and by the fifth census, it had risen to double at 1.2 billion. The Chinese population now has crossed a mark of 1.4 billion people. It also covers most geographical time zones after that of Russia. This means that the country is not just big in population but also huge in the area.
A big country like that of China needs a lot of products and services. They need a lot of goods to meet the needs of people residing in that country. Some of the goods can be imported and the rest have to be produced in the home country. In fact, most goods that they can’t import or the goods that are not economical to import, they have to manufacture by themselves.
Not to mention that China is one of the cheapest labour countries out there. In this article, we are gonna cover the economy of this country. We will discuss what comprises the most in this economy and what are its driving factors. Read on to know more about the second-biggest economy in the world.
China or the Republic of China (official name) is a country in East Asia. As we mentioned earlier it is the biggest, in terms of population. It contains the largest number of people than any country. This country also spans and covers most geographical time zones after Russia.
The country has 23 provinces, 4 municipalities, 5 autonomous regions and 2 SARs (Special administrative regions). The capital of China is Beijing. The largest city in China, which is also the financial centre, is Shanghai. In terms of technological and innovative approaches, the city of Shenzhen tops the chart in this country.
China at its inception emerged as one of the very first civilisations. It was the fertile land basin of a river named Yellow that marked its beginning. After the civilization boom, China also emerged as one of the first economically strong countries. Their time as a strong economic power also remained for almost most of the two millennia (thousand years).
Also, the political system of this country is based on monarchies. It has been this way for almost a thousand years (Millenia). This means that for those many years, China’s political system was controlled by rulers and then their heirs and then their heirs. This is what we call an absolute hereditary monarchy. This system of political control began from the ‘Xia dynasty in about the 21st Century BCE. Moreover, since then the country of China has seen multiple expansions, fractions and re-unities.
China: The Culture
The culture of such a big country is expected to be special and unique. Since very ancient times, the culture has been heavily influenced by the philosophy of Confucianism. Which is a tenet in philosophy. This is also known as a truism and inspires people to live a humanistic, rationalistic and very simple life.
The culture there in the past also offered examinations, tests. Those exams were to be passed by a person to get a highly prestigious and better status in society. This is one of the reasons why China has a long history of writing and calligraphy. In fact, calligraphy, writing poetry and painting are more celebrated than other forms of art like dancing or dramatics. Its culture also inspires people to be diving deep into the lanes of history to know about their past. This also invokes the trait of an inward-looking behaviour of Chinese people in the past, this ran at a national level of thought process.
China: The Economy
It is an aforementioned fact that China is big and has a lot of people. It has to cater to about 1.4 billion people for its sustenance. This really marks that the economy must be big and effective. However, this is not as easy as it seems.
Even though China is the largest in terms of population, we cannot really say that it is the biggest when it comes to the economy. It is second in terms of magnitude just after the United States. It is important to note that economies are weighed in terms of GDPs. GDP stands for the gross domestic product. That is in simpler terms, the sum total of all the valuable products or services that a country produces in a financial year.
According to the GDPs, in the pandemic year 2020, China is seen to have the second-largest GDP in the world. Here are the top five countries according to the GDP ranks.
Highest-ranking countries in the world in nominal GDP
When we talk in terms of GDP, we measure it in dollars. We can also notice that China may be the second largest in GDP but it is the largest in terms of PPP.
PPP stands for purchasing power parity. PPP is a popular macroeconomic analysis metric that is used to compare economic productivity and standards of living between countries in purchasing power. The theory follows a theory known as the “Basket of goods” for comparing the purchasing power of different countries.
China tops the list when we see through the lens of purchasing power parity. This shows us the fact that even if the Chinese economy is the second-largest, the citizens of China are better in purchasing power and economic productivity than that most countries. Please note that PPP here does not mean a paycheck protection program, made by the CARES Act.
China’s growth rate (In annual terms) is displacing that of the United States of America. Many think that China’s rate will overtake the United States in terms of Nominal GDP too in the upcoming years. Don’t get scared of the terminology “Nominal GDP”. Nominal GDP is a form of GDP that is in the current rates, without accounting for the effect of inflation on the GDP. So, this is a GDP at the current market price.
There are many reasons for china that made this country get this spot of a top tier pacer in the economic race. We will discuss more in a second. But let us get some overview, China has progressively opened its economy with the whole world, continuously for more than forty years. This reveals a good reason why its economy is on a paced growth and why the standards of people there have been improving vastly.
The Chinese government has gradually phased out collectivised agriculture too. It means the type of agriculture in which multiple farmers can hold land and share workloads of the agriculture activity. Thus, it helps in sharing Profits and losses among farmers and makes farming a little more smooth sailing.
Collectivised farming has also boosted flexibility for market prices and increased the autonomy of businesses. When a country’s agriculture is doing well, it can then pay more attention to the industrial sector and thus China’s domestic and foreign trade magnitudes are also rising at a good rate of growth.
By far we have discussed China and its economy. We have seen that it is a rapidly growing economy with such a behemoth sort of population. This might interest you in how this big country is fostering growth with such a huge number of people and how it is able to raise citizens’ standard of living. This is the part of the article where we discuss the reasons for such growth in China. How it is becoming, what it is becoming and what are the main drivers of growth for this economy.
The Manufacturing Hub of the world
China, if you don’t know, is the manufacturing hub of the world. If you are using a product that is sold by a brand or even a local product then it is a good possibility that the product would be manufactured in China.
Yes, look around yourself. Your favourite Apple products are assembled in china, your favourite Converse or Nike sneakers are made in China, and most things that you can think of are manufactured in China. Do you ask for a reason? The reason is obviously cheap labour.
With such a big population, China has some special benefits over any other country in the world. It can provide a good basis for cheap labour. For that one reason, it has emerged as the global capital of manufacturing items.
Besides its large hands on the textile industry, the economy also is big on machinery, processing of food items, Cement for infrastructure, consumer goods and many many more fields.
Moreover, China is not a huge hub only for domestic manufacturing plants, it also caters to the needs of foreign companies to come and manufacture there or assemble items. Famous examples may include Apple. Apple designs their products in California and they are assembled in China. Adding to this, The Chinese software and IT industry grew by over 14.2% from 2018 to 2019, generating revenue of approximately $940 billion.
Apple Factory in China
Heavy Focus on Industries
Another reason which makes this country a big economy is its industries. As any normal developing country, China knows that for growing its economy, it needs to pay attention to the industries that are set in its territory. So they focus extensively on that.
China is a super friendly nation when it comes to industries wanting to set up manufacturing plants there. Results of which are the fact that China is the world’s biggest steel manufacturer. This shows a strong will of steel.
The Chinese government began opening up the economy for the whole world in 1978. Which is also known as globalisation. So it began its reforms for economic development under the leader named Deng Xiaoping. That was a turning point in the history of this big country, after the reforms it went on to become the fastest-growing major country globally.
According to a report, the growth rates were averaging 10% over 30 years. China also has three of the ten largest stock exchanges in India. They are located in prime cities like Shanghai, Hong Kong and Shenzhen. They are big in terms of market capitalisation and trading volume. All these factors establish that China is an industrial hub.
The Medicines industry
Abbreviated as Pharmaceutical industry. China has one of the best, state of the art medical supply chains. The growth trends in this industry copy the whole of China. It grows almost as China grows, which is rapid. China had the second-largest pharmaceutical market in the world as of 2017.
The pharmaceutical industry follows the same structure as most of the world. They have manufacturers at the top and then middlemen or distributors and then retail stores communicate directly to the general public. However, the global share of China’s medicines is seen less. With a big population, it is forecasted to grow even more and is still one of the biggest in terms of scale.
The Population’s Demand-pull
As mentioned earlier, China is very populous. Which makes it a generator of huge demands. Brands all over the world try to target this demand to get some share of this market. So this has become one of the most important drivers of economic growth for that country. It is a consumer paradise with all types of demands for goods, be it normal or luxury items.
China has some of the biggest shopping malls in the world. They, not to mention, stimulate growth in a good direction. The retail lines of China contributed about 1.8 trillion dollars to the Gross domestic product.
China Global Center Mall
China is also the home to the E-Commerce giant Alibaba. It is responsible for giving a lasting boost to the already big consumerism in China. A report said that Alibaba on a shopping festival achieved something sort of called a miraculous sale. It touched a sales record of 540.3 billion Yuan (it is about 84.5 billion dollars), which is a huge record for such a huge country. This gave a much-needed boost to the consumer sector. Even today it is one of the benchmarks for sales all over the world.
Alibaba Logo
Tourism and travel is also big sector in China. It reportedly contributed 992 billion dollars to the Chinese GDP in the year 2019. Other sectors that are the prime demand pullers are transportation, construction and estate.
What can go wrong with China?
China, however big it may seem from the outside, can go weak from the inside. There can be many premises on which the country is not doing well. For example, China uses a lot of Non-renewable resources to produce power, electricity. The population needs it and the shift in this sector seems impossible. This marks the country as a huge member of the world’s pollution and a big emitter of greenhouse gases.
As we discussed previously, the China government is a monarch at its core. This makes enough space for corruption. The government is however trying to curb corruption and make the country more flexible and friendly for the world’s businesses. This can take time and if not done correctly can leave a bad impression on the image of China. This problem is not just one faced. It is a multifaceted problem, as it can lead to fewer industries in China and thus low employment rates in the country.
Speaking of that, China also faces the problem of unemployment. It needs to place people with enough skillsets for employment. Which is also a big deal in a country as big as China.
In addition to the political and the internal housing issue, one more issue lurks there. The recent downward trend of the labour industry. This means that China is slowly losing the crown of the cheapest labour in the world. The reason for this can be inflation and the digitalised working models and economy. China is losing its position to other cheap labour countries like Pakistan, India etcetera. For India, it is good news but if China has to retain its manufacturing position then it needs to be more ready for this changing technological world.
As we discussed above, China is a big country with a huge population and big demands. It is important to note that it, obviously, also has some cracks. Some cracks in the economy that are not severe but if not cured could sink a big ship.
The recent Evergrande fail was one such big example of how things can go wrong. China has seen real estate bubbles in its history too. The previous bubble burst and hit the whole world’s market, more recently the Evergrande crisis made the investors scared of investing in China.
It is a good point to say that “With great powers comes great responsibilities”. China has a load of the most people on the globe, which can be overwhelming to the government. In these times of pandemic, the future remains random and uncertain.
The fact that the Covid 19 pandemic originated from the heart of China also is affecting the Chinese economy in the wrong manner. It has defamed China in some sense. This is the reason that some industries are looking to shift base to developing countries like India.
For China, it remains a tough call to tackle a pandemic and the future of its economy. Again, it is not supposed to be easy to handle such a big and populous economy.
FAQ
Is China a developed country?
Yes, China is one of the largest developing countries in the world.
What is China’s GDP?
The gross domestic product (GDP) of China is around 14.87 trillion U.S. dollars as of 2020.
Is China the fastest growing economy?
Yes, China ranks second in the world’s fastest-growing economy.
The major cities of India have been under lockdown from the month of April and most of them have increased the lockdown to 31 May 2021 as of now. Even after the economic shutdown the Indian business magnate Rakesh Jhunjhunwala has conveyed positive sentiments towards the Indian economy and stock market, whereas certain institutions have conveyed that they expect around 10% growth in the GDP of the country. Let’s look at what they have spoken about the growth of the GDP in India.
In an interview with a senior journalist, the Indian business magnate, Rakesh Jhunjhunwala has disapproved of the sentiments of the media and showed a positive approach to the Indian economy. The interviewer had spoken to Rakesh Jhunjhunwala about various issues faced by the country such as growth rate, investment and GDP and added that the country is facing an economic crisis.
Rakesh Jhunjhunwala had conveyed down all the worries and said that he expects that the country would have a 10% growth for this fiscal year.
He added that considering the unexpected situation faced by the country, he expects the market to revive by the month of July which is with the reduction in cases due to the second wave of the pandemic.
Rakesh Jhunjhunwala on Future of Indian Economy
While the journalist had expressed about the rise in economic problems in the country such asrise in unemployment, the decline in the purchasing power of the individuals and added a question asking when the citizens of the country are losing their lives, no money in their pocket and while the bodies are floating on the river how the stock market was doing well.
To the question, Jhunjhunwala answered that the market works on reality and not on the basis of sentiments. He said that the GST collection in the country during the month of April was 1.41 lakh crores and there has been a rise in the income of all the major companies from the past 3-4 quarters.
The journalist had asked another question asking if the market is being manipulated and how can there be a positive sentiment by the investors when the unemployment is increasing. To this, he answered by saying that investments are made based on the future projections and it looks promising.
Rakesh Jhunjhunwala on Centre’s Economic Management
After ensuring that the country’s economy is far from sinking, Jhunjhunwala had conveyed that he would give a score of 9 out of 10 for the economic management of the Centre. He also added that the effect of introducing major reforms in the sector such as agricultural, mining, labor and power sectors will be seen later.
He also pointed out the digitalization made by the government which has helped people to transfer money easily within minutes whereas a few years back people had to pay transactional fees and wait for a while to transfer the money.
He said that the GDP growth is in the right direction and added that the only way to get rid of poverty is to increase in growth which will, in turn, increase the wealth of the people.
Whereas multiple analysts and financial agencies have downgraded the GDP for the country for the present fiscal year. Barclays had predicted the GDP growth of India to be more than 10% in the beginning but now they have lowered it to 10%. The latest forecast was done by JP Morgan who has lowered it to 9%.
The Chief Economist of the SBI group has said that there is a possibility for the economy of India to grow to the sub of 10% during the FY 2022. He added that the month of April was somewhat a washout, while May has been a complete washout and June is also expected to have a little bit of washout.
FAQ
Is India doing good in GDP?
India’s economy had expanded by 3.1 per cent in the March quarter and FY20 GDP growth was around 4.2 per cent.
What is the growth rate of Indian economy in 2020?
GDP at Current Prices or Nominal GDP in the year 2020-21 is estimated to attain a level of Rs 195.86 trillion, as against Rs 203.51 trillion in 2019-20
Which sector is backbone of Indian economy?
MSME is considered as a backbone of Indian Economy.
Conclusion
He said that when all these factors are being taken into consideration the situation of the country is not looking so good. SBI economists have also cut the forecasts of the Indian economy from 11% to 10% and he added that they are focusing on that number until 31 May 2021.
India is furnished with vast solar energy potential. Solar is the most secure source of energy because it is abundantly available in nature. Solar power is the fastest developing industry in India. Solar power is a renewable source of energy. It is the power produced by the sun’s light. The solar energy invested reach of our nation was about 35,739 as of August 2020. There has been an eminent impact of solar power in the Indian energy scenario in the past few years.
India has built 42 solar potential parks to make the area available to promoters of solar plants. The solar energy installed capacity of our nation was about 35,739 as of August 2020. There has been an eminent impact of solar power in the Indian energy scenario in the past few years. India has built forty-two solar energy parks to create a realm accessible to promoters of solar plants. Rooftop solar energy is 2.1 GW, of that 70 % is industrial. By the year-end of 2015, a million solar lanterns were traded that reduced the utilization of lamp oil. 118,700 solar home lighting systems were put in, and 1.4 million solar cookers were administered in India.
India achieved the 5th global position in solar power arrangement by surpassing Italy.
Annual Solar Power Generation(TWh)
Future of Solar Power Market
The changing lifestyle of people with the increasing industrialization has made electricity a vital commodity. To decrease the concern of high electricity demand with decreasing fossil fuels, policy makers have been looking for a sustainable source of electricity generation. Solar energy is the readiest and green option available.
The report published by IMD (Indian Meteorological Department) states that The solar energy received is more than 15000 times the commercial energy consumption, and this energy is available during the day without any constraint.
According to GOGLA (Global Association For the Off-Grid Solar Energy Industry), the market for distributed solar power merchandise is expected to grow more than two-and-a-half times to Rs 10,117 crore by the year 2023. Including solar lamps, solar pump kits, and other home devices. It is estimated that the current market size for distributed solar in our country is at Rs 3,878 crore, including Rs 3,170 owned by the government and the rest by private owned entities. The sales are estimated to grow to Rs 2,617 crore in the private sector and Rs 7,500 crore in the government sector. Most of the future sales are estimated to come from lanterns with some additional services like mobile charging, radio, etc. and solar home systems. Increasing income and energy demand are the key market drivers.
Sustainable Development through Solar Energy
Investing in domestic manufacturing may help in building the supply chain, control prices, and earn foreign exchange through exports. This will help in creating job opportunities, increasing the GDP(Gross Domestic Product) for the nation.
The imposition of a nationwide lockdown by the government to control the coronavirus outbreak harmed the whole economy. The solar industry will have immediate challenges due to the COVID-19 outbreak, such as the shortage of labor force compliance with social distancing, shortage of equipment and parts, and discrete expenditure by users. India’s solar power sector is struggling in the pandemic. There has been a decline in electricity consumption of 30% due to the lockdown of industries and markets. China is the largest supplier of solar raw materials such as cells, glass, back sheets, frames, junction boxes, etc. Due to the coronavirus crisis, there was a long hold on the import of such items from china, the module assembling capacity of manufacturers is being affected. There may be a rise in solar module prices shortly as the manufacturers have begun experiencing raw material shortages. The prices of various components will rise because of the decrease in supply from China. Engineering, procurement, and production companies now have to bear all the variable factors from procurement of bills of material of the panel to the manufacturing and supply chain.
The Ministry of New and Renewable Energy(MNRE) installed 51 solar radiation resource assessment stations across India to create a database. India started a Rs 40 crore project to measure solar radiation. The government allocated Rs 1000 crore for the national solar mission and clean-energy fuel fund for the year 2010-2011. The government reduced import duties on solar panels by 5% which encouraged private sector companies. The Indian government also reduced the price of PV power from rs 4.43/KWh to Rs 4.00/KWh. During January 2019, the term for authorizing the production of the solar power plants was lessened to 18 months for units located outside the solar parks and 15 months for separate units from the date of the contract. In May 2020, the tariff was reduced to rs 2.90/KWh.
Top Solar Power Companies In India
Incentives By the Government
Viability Gap Funding: The funding was Rs 1 crore/MW for open projects on average in the year 2016.
Depreciation: 40% of the total investment in rooftop solar systems could be claimed as depreciation in the first year.
25% safeguard duty is imposed for 2 years from 2018 on the imports to safeguard the local manufacturers.
Capital subsidies to rooftop solar plants up to 500 KWh.
Renewable Energy Certificates(REC): Financial incentives for every unit of green energy generated.
Power Purchase Agreement(PPA): Offering fair market-determined tariff for solar power.
ISTS(Interstate Transmission Systems): Charges and losses are not taxable during the period of PPA.
Subsidy of 70% and 30% is granted by the Union Government for hilly regions.
