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Financial Outlook

The Indian economy was caught up in the mini-emerging markets crisis that began in May 2013 when the US Federal Reserve announced that it was considering tapering off its quantitative easing program. This triggered a rapid depreciation in the currencies of emerging market countries with high fiscal deficits and substantial borrowings in US dollars since tapering is deemed to strengthen the dollar, thus making debt repayments more expensive. The rupee regained most of its losses after the Federal Reserve decided not to initiate tapering in September, but the threat remains for 2014. Indian consumer spending shrank from May to September 2013 in the face of sharply rising prices as the rupee depreciated. The 2013/14 budget foresaw India’s fiscal deficit improving from 5.2% of GDP in 2012/13 to 4.8% in 2013/14. The budget imposed additional taxes on the wealthy and on Indian companies with turnover in excess of 100 million rupees (approximately US1.6 million). The GDP growth rate of 4.4% in the second quarter of 2013 was India’s lowest for four years. However, growth picked up in the third quarter and India expects to end 2013 with GDP growth of 5.3%; this is well down on earlier forecasts of 6.4%, reflecting both the impact of the emerging market crisis and a slowdown in key sectors such as mining and manufacturing.

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Further reading on India


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