Weakening rupee leads to slow growth of Indian Economy

The International Monetary Fund (IMF)  has cut India’s growth forecast to 5.6% for this fiscal against an earlier projection of 5.8% . IMF has cited slow growth in credit and drooping market to be the main reason behind this cut down.

“While old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies,” the IMF stated with regards to its update on World Economic Outlook.

Economy- Growth or Decline

Foreign Institutional Investors (FIIs) took away US$ 4.2 billion from bonds and US$ 850 million from equity markets squeezing the bond yield for India on account of slow Indian currency.

Our country is facing serious trouble of slow growth, lower credits and stiff financial conditions. Contrarily, the foreign investors are pulling out money from the emerging markets such as ours on account of higher returns.

“The results could be sustained capital-flow reversals and lower growth in emerging markets,” warned the IMF.

 “The impact of capital outflows demonstrated the extent to which India has become dependent on foreign funds that have gushed into emerging markets after the Fed embarked on an easy money policy to stimulate the US economy following the 2008 financial crisis,” noted the Mint.

Meanwhile, IMF has also slightly cut India’s economic growth forecast to 6.3% for 2014-15. It was estimated to be 6.2% earlier by the IMF.

The whole story revolves around India’s troubled economic conditions. With Indian currency touching the lowest, investors are turning to overseas investment opportunities for higher returns.

“Risks of slower growth have now increased due to protracted effects of domestic capacity constraints, slowing credit growth, and weak external conditions“, stated the IMF.