What's Wrong with the Indian Economy?

Other factors blamed for the rise in current account deficit are gold and oil imports. Moody's analyst Atsi Sheth has previously said, "Policies that trigger private investment and curb inflationary pressures in the near-term are more likely to help narrow the account deficit."

The CAD has narrowed the fiscal policy tools available to the central bank, said India's central bank governor Duvvuri Subbarao.

2. Slow Speed of Economic Change

The slow speed of the economic growth in the recent years has put lime light on the need for economic reform in a situation where most of the foreign investors are wrapping up their business. The initiatives to increase investments failed when the budget 13-14 disappointed market expectations. The major failure is considered as the fact that the government failed to respond to issues like a cut on outstanding taxes on debt investments.

However, in May the government took the issue seriously and gave the market expectations a positive nod. It was declared that foreign institutional investors (FIIs) and qualified foreign investors (QFIs) will have benefits of withholding rate of 5 percent, lowered from 20 percent on revenues from government and corporate bonds, from June 1 to May 31, 2015. Yet, India is considered as the player who likes to play it safe.

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