Updated December 9, 2022
In the last few years, India was one of the fastest-growing economies. According to the Economic Survey 2018-2019, the Indian economy has gradually shifted from a period of high inflation to a more stable and low level of inflation along with steady GDP growth in the past five years.
A consistent boost in world trade has helped India to increase its GDP growth rate and a reduction in inflation numbers boosted the growth of the domestic economy.
Low inflation contributes towards economic stability which encourages saving, investment, and economic growth, and helps maintain international competitiveness.
Role of fast GDP and low inflation in boosting of Economy
Creation of assets
The growth of GDP increases external investments in the form of FDI and FII, which facilitate providing the desired rapidity for growth. Similarly, once inflation is down then people are left with extra cash in their hands after disbursal on basic needs, and the rest of the money is used for making assets in a variety of land, gold, or automotive.
Increase in public and private expenditure
Due to the Increasing of money in the economy, people will spend a lot of money in the form of short or long-term gains. Lowering inflation can modify the general public to spend their incomes, which may boost demand for products and services. This keeps the cycle of the economy running.
Increasing the financial gain of the public and reducing expenditure
As growth keeps on occurring steady public financial gain gets accumulated. Over a period of time, this additional financial gain accumulates, leading to a lot of possibilities for expenditure.
Similarly, because of low inflation, individuals do not have to be compelled to worry about meeting their necessary expenditures. The percentage of their income growth is about to be so much ahead of the increasing rate of inflation.
GDP growth and low inflation were not sufficient. Why?
Low inflation is an indicator of low demand and low demand has adversely affected industrial output.
When companies see profits decline then to reduce expenses they will get out some workers which results in increasing the unemployment rate.
High economic growth has not increased employment. And, as we know that higher unemployment will reduce the demand or consumer confidence which further impacts investment.
Economic growth suffers due to the slowdown of investments and consumption. This results in the decline of revenues even more, and therefore the economy is pushed into a negative spiral.
There will be more bad loans. It strains bank balance sheets even more. India has experienced all of those problems since the late-2014 when inflation hit the 4% level.
Low inflation has resulted in reduced returns for farmers. This has adversely affected the agricultural economy and resulted in agrarian distress.
When economic growth increases, inflation may also rise. However, it’s possible to possess both low inflation and a positive economic process – goodbye because the growth is sustainable and productive capacity increases at an identical rate to aggregate demand.
Thus, we are going to infer that GDP growth and reducing inflation created fertile ground for enhancing the domestic economy that created the Republic of India as one of the quickest-growing economies on the earth.