Much of this has been caused by some key events that took place this year. Here is a look at seven of the most important events that affected the economy in 2014:
1. New government: The year saw a regime change for the government. The Bharatiya Janata Party won the elections with a whopping majority after a successful election campaign that highlighted the need for reforms. Markets too jumped on hopes that the new government would pass reforms required to get the economy back on the growth path. On the day of the election results, the Sensex jumped over 1000 points. By the time the new government led by Prime Minister Narendra Modi took oath, the Sensex went to 24,700 from 22,300 levels.
2. New reforms: The new government set to task immediately after forming government. It announced changes to the labour laws – some of which were decades old; allowed more foreign investment in sectors like infrastructure and real estate; changes in pension rules; announced new insurance rules as well as the much-awaited Goods and Services Tax. Some of these are pending approval in the Lok Sabha.
3.Coal block cancellations: This was perhaps one of the most surprising developments in the year. In September, the Supreme Court cancelled 214 coal blocks, which were allotted between 1993 and 2011. It gave the companies six months to return the blocks to the state-owned Coal India. Metal stocks fell sharply as a result of the announcement. Jindal Steel and Power was the most affected, losing around eight mines. The government now plans to auction the blocks in a fresh round. This is expected to take place in February 2015.
4.Fall in inflation: Inflation has been one of India’s biggest problems. It remained elevated for a long period of time, often growing at a rate over 10%. This year brought cheer on this end too. Inflation fell the entire year to new multi-year lows. Wholesale price inflation grew 0% in November, while retail inflation grew 4.4%, as per the latest data. This has been predominantly because of a fall in global oil prices. Food inflation, which grew 15.4% in November 2013, is down to 3.1% in the same month in 2014. This is good news, as high inflation eats into the value of money. A continuous fall in inflation also could open doors for a cut in interest rates by the Reserve Bank of India. This could help spur growth.
5.Diesel deregulation: The Indian government sub sidises fuel prices. It compensates the fuel-selling companies for their loss. This, in turn, increases the government’s expenditures. In 2014, the government decontrolled diesel prices, allowing companies to sell oil at market prices. This was possible mainly because international prices remained low. As a result, companies announced a cut in diesel prices after the deregulation. Diesel cost Rs 54.34 in New Delhi and Rs 62.6 in Mumbai per liter at the start of the year. It now costs Rs 50.51 in Delhi and Rs 57.91 per liter in Mumbai.
6.End of quantitative easing: In May 2013, the US Federal Reserve announced its intentions to cut down its bond purchases, called the Quantitative Easing program. The US central bank infused money into the US markets through this program. This money found its way into riskier emerging markets like India. The announcement led to market crashes around the world. The Indian market was the most affected. 2014 has seen a reversal of this effect. The US central bank slowly reduced its bond purchases to finally end the program in October this year. Despite that, foreign investors continued investing in India as the underlying economy and fundamentals improved. The US central bank also indicated it may hike interest rates next year.
7.Oil prices fall: Prices of crude oil in the international markets is trending at $60 per barrel. This is down from $110/barrel-levels at the start of the year. A key reason for this fall has been the reduction in imports by the US. America has now become the largest producer of oil even though it does not export. As import demand for oil falls, prices trend lower. This $50 fall has benefited India, which imports nearly 70% of its oil needs every year. However, whenever the price of oil falls, the US dollar rises against other currencies. As a result, the rupee rose to Rs 63/$-levels again in December.
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