After sustaining an average growth of over 8 per cent during 2003-2012, India witnessed a sharp deceleration in growth of less than 5 per cent in next two years. While initially this slowdown was attributed to a fragile global recovery, it was latter realised that domestic factors have perhaps contributed more to this sluggishness.

As this paper has observed that the macro fundamentals were indeed pointing to this slowdown, notwithstanding the smart recovery in two years of 2009-2011, immediately after the global economic meltdown. But a sharper moderation in growth than even the most pessimists had earlier visualised was due to depressed sentiments, depressed investment and capacity constraints and the perceived policy logjam. These were also the factors which contributed to inflation which remained stubborn despite many upward revisions in policy rates by the Reserve Bank of India.

Besides setting the challenges that our economy faces in a historical perspective, the paper suggests policy options. Centad hopes that this working paper will generate informed discussion and provide important inputs for policy interventions.

S Jagadeesan
Chairman, Centad

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