In recent years, India has been one of the best performers in the global economy. But the inflation rate has been rapidly increasing and India is facing tough challenges while running the world’s largest democracy.

India’s economy grew at 9.2% in 2007 and 9.6% in 2006. This growth had been complemented by rising foreign exchange reserves, IT and real estate boom, market reforms, huge inflows of FDI, and a flourishing capital market.

However, in 2008, like most countries of the world, India too suffered from the economic recession. Although, the Reserve Bank of India had set an inflation target of 4%, but it hit 11% by the middle of the year. It was the highest rate observed in a decade. The underlying reasons are the rising costs of food articles, oil, and the construction material.

The Indian Government is exploring new alternatives, and has signed a wide-ranging nuclear treaty with the US in this regard. It will allow India access to nuclear power plant technology that can help reduce its oil demand. Though this has been a controversial issue, leading the leftist members of the ruling coalition to pull out of the government.

A tighter monetary policy will also not work as it will further reduce the domestic demand and slacken the growth of the Indian economy. The Indian stock market has also witnessed a downward trend since its January 2008 high. It has fallen more than 40% in six months. There has been an outflow of $6bn of foreign funds in that period.