Four months ago I had rung some alarm bells about macroeconomic developments and pressures (“Macro stability at risk”, Business Standard, July 12, 2018). While recognising the negative effects of elevated oil prices, international trade wars and the reversal in capital inflows to some emerging countries (including India), the article drew attention to some major medium-term weaknesses in India's macro-economy. In particular it cited “the deep and long-drawn crisis in India's public sector banks and the big deficit in foreign trade, caused, in large part, by the unfortunate stagnation in India’s merchandise exports…”. Both these factors continue to pressure India's macro stability today. So do persistent fiscal deficits, now running at a high 7 per cent of GDP (Centre and states combined) and the lasting impact of demonetisation on small-scale/informal sector output, employment and exports. In the last couple of months, two new adverse developments have compounded the challenges facing the nation's economic managers.
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