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What May Go Wrong with India’s Recovery

India has come a long way since the “taper tantrum” of 2013, transitioning from a “fragile five” economy into a darling of investors.  The election of Prime Minister Narendra Modi last May combined with stabilization in macro-economic conditions – including easing inflation, a shrinking current account deficit and improving government balances – placed the country back on investors’ radars. This resulted in a flood of foreign money entering its stock market, which ranked as one of the top performers globally last year.

While the stars may seem aligned, the economy is not fully in the clear yet, analysts warn.  Goldman Sachs, which is broadly optimistic on the market, says the key obstacles to the Indian growth story would be a loss of reform momentum or a slow pace of job creation, leading to demands for more populist policies.

“Reform momentum can slow either due to an inability to pass key legislation in Parliament, or a demand for greater subsidies if economic activity and jobs do not increase at the desired pace,” Tushar Poddar, chief India economist at the bank, wrote in a note.

CNBC [1]

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