India’s economy is likely to face a cash crunch, oil price shock and gas shortages as it struggles to address the issues of inflation, power outages and soaring electricity prices.
The economy is also vulnerable to political turmoil and the looming threat of the Goods and Services Tax (GST), which has been delayed since August.
“I think the economy is going to be hurt by the low oil price, and it is likely that it will continue to do so as well,” said N.P. Sathyaprakash, director general, World Bank.
“It will be tough on the private sector.”
The world’s second-largest economy, India accounts for about half of the world’s total economic output and accounts for almost one-third of global imports.
The country has the largest population and the largest economy in Asia and Africa.
The government has said it expects inflation to rise to 6.7 per cent in 2019, which would push its gross domestic product (GDP) to nearly $40 trillion (C$49.4 trillion).
“The government is taking measures to reduce inflation by 25 per cent by 2019,” Finance Minister Arun Jaitley told reporters on Thursday.
“The central bank is also keeping the target rate at 6.75 per cent,” he added.
Jaitley said the government had decided to cut corporate tax from 6 per cent to 3 per cent, and that the central bank would be raising interest rates to 3.5 per cent.
However, he also noted that the government is “very supportive” of the country’s banks, which are not subject to any capital controls.
“We have to make sure that banks can function,” he said.
The economy is already facing a severe cash crunch and the government has announced a Rs 3,000-crore subsidy scheme to ease the burden on people who need it.
The central government is also providing emergency assistance of Rs 500-crores to the poor and has also started making loans for the poor.
The government also plans to provide Rs 4,000 crore to the rural poor.