. Inflation. Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem.

Inflation is currently between 6-7%. A record 98% of Indian firms report operating close to full capacity (2)With economic growth of 9.2% per annum inflationary pressures are likely to increase, especially with supply side constraints such as infrastructure. The wholesale-price index (WPI), rose to an annualised 6.6% in Janu 2007 (1) 2. Poor educational standards. Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate 3. Poor Infrastructure. Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiencys facing the Indian economy. 4. Balance of Payments deterioration. Although India has built up large amounts of foreign currency reserves the current account deficit has deteriorate in recent months. This deterioration is a result of the overheating of the economy. Aggregate Supply cannot meet Aggregate demand so consumers are sucking in imports. Excluding workers remittances Indias current account deficit is approaching 5% of GDP 5. High levels of debt. Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future 6. Inequality has risen rather than decreased. It is hoped that economic growth would help drag the Indian poor above the poverty line. However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of Indias rural poor are yet to receive any tangible benefit from the Indias economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3) 7. Large Budget Deficit. India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.

8. Rigid labour Laws. As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws.
Indian economy is facing many short term economic challenges, mainly as a fallout of the ongoing European debt turmoil and the US slowdown, according to an OECD official. Paris-based Organisation for Economic Cooperation and Development (OECD) is a grouping of mostly developed nations. OECD Development Centre Director Mario Pezzini said that India is facing a "series" of short term macro economic challenges. "(These challenges) are obviously related to the crisis in the United States first and then Europe...," Pezzini told reporters here. He noted that there are also challenges related to internal demand and overall liquidity. Persisting European debt crisis is impacting India's growth prospects, especially the exports sector. Besides, the domestic economy is growing at a relatively sluggish pace and GDP expanded by 5.5 per cent in the April-June quarter. "I think there are long term challenges also (for India) such as social cohesion. "...There is an issue of policies. How do you put the policies with in an appropriate coherence with that of the action of the government. How do you decide the appropriate mix of policies and the sequence of it," Pezzini said. Further, he emphasised that India should play a larger role in international relations. Echoing the view, Global Development Network (GDN) President Pierre Jacquet said he too would like to see a larger role for India in the international arena amid changing global economic conditions. GDN is an independent group that allies researchers and institutes in development globally. "I would like to see India play a larger role in international relations for many reasons. India's future is in globalisation," Jacquet added. Both of them stressed on the need for having continued dialogues among countries to take forward the agenda of social reforms. "There is a growing conviction that there cannot be sustainable growth without inter linkages (in the society)... The political economy of social reform is not easy," Jacquet noted. According to Pezzini, development is happening in countries in different conditions. "We cannot be prescriptive, like we

have been in the last two or three decades... We need to go back to a more diagnostic capacity," he added. "In the past, we thought market forces could solve all problems. But in the present, we know that institutions matters, the social conditions matter and institution and social conditions are different in different countries," he emphasised.

Macroeconomics (from the Greek prefix makro- meaning "large" and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.[1][2] With microeconomics, macroeconomics is one of the two most general fields in economics. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). Macroeconomic models and their forecasts are used by governments to assist in the development and evaluation of economic policy. Macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research.[3] Macroeconomic theories usually relate the phenomena of output, unemployment, and inflation. Outside of macroeconomic theory, these topics are also extremely important to all economic agents including workers, consumers, and producers.

Output and income

National output is the total value of everything a country produces in a given time period. Everything that is produced and sold generates income. Therefore, output and income are usually considered equivalent and the two terms are often used interchangeably. Output can be measured as total income, or, it can be viewed from the production side and measured as the total value of final goods and services or the sum of all value added in the economy.[4] Macroeconomic output is usually measured by Gross Domestic Product (GDP) or one of the other national accounts. Economists interested in long-run increases in output study economic growth. Advances in technology, accumulation of machinery and other capital, and better education and human capital all lead to increased economic output over time. However, output does not always increase consistently. Business cycles can cause short-term drops in output called recessions. Economists look for macroeconomic policies that prevent economies from slipping into recessions and that lead to faster long-term growth. The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labor force. The labor force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labor force.

Unemployment can be generally broken down into several types that are related to different causes. Classical unemployment occurs when wages are too high for employers to be willing to hire more workers. Wages may be too high because of minimum wage laws or union activity. Consistent with classical unemployment, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment.[5] Structural unemployment covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.[6] Large amounts of structural unemployment can occur when an economy is transitioning industries and workers find their previous set of skills are no longer in demand. Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process.[7] While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates. Okun's law represents the empirical relationship between unemployment and economic growth.[8] The original version of Okun's law states that a 3% increase in output would lead to a 1% decrease in unemployment.[9]