Testing times for the economy

Amid tightening global liquidity, rising protectionist sentiment and high oil prices, Indian policymakers are faced with difficult choices to keep the country's macroeconomic stability intact

The success of the liberalisation policy and wide-ranging economic reforms that were introduced during the early 1990s put India on an unprecedented growth path. What’s important to acknowledge is that the growth story was built around services rather than manufacturing, unlike what had happened in other Asian countries. Another distinctive aspect of the Indian growth story has been its foremost reliance on domestic factors, thereby also helping to limit the potentially destabilising impact of global developments such as the last global financial crisis.

Signs of a difficult global environment are visible again and it is important to analyse if India can