By K R Sudhaman
The vision of founding fathers has ensured that the Indian economy developed wherewithal and resilience to weather the storm from time to time. The economy has developed unique ability to convert challenges into opportunity, be it food shortage of the 1950 and 1960s that led to green revolution, 1962 Chinese aggression that ensured that Indian armed forces acquired the necessary wherewithal, the 1991 balance of payment crisis, that led to far-reaching economic reforms. India weathered 1998 US economic sanctions after Nuclear explosion or the East Asian currency meltdown or the 2008 global financial crisis or the latest Covid-19 Pandemic.
In all these situations, India not only waded through the difficulties but also emerged victorious to put the economy back on rails and high growth path. As 2022 ends and New Year 2023 dawns, India is certainly in a bright spot among comity of nations, many of whom are facing severe economic crisis. There are only a handful of countries like India, which can tide over the situation in spite of difficult global economic headwinds, be it geo political situation, global economic slowdown or re-emergence of Covid 19 in China. The economic and geo-political situation among our neighbours too is not encouraging and this could turn out to be a head ache for India.
As we enter 2023, India may still remain the top most growing economy at 6-7 per cent, but two big challenges could pose problem—namely stubborn inflation and sagging exports. Both have the potential to pull down the economic growth. Though retail inflation is falling lately, it is still elevated and geo-political and global situation could reverse it anytime. As it is food and fuel inflation are still high.
Slowing global growth and cooling demand would be two main factors to pull down India’s exports, which showed signs of recovery in the previous quarters. Now the forecast is that India’s goods exports may shrink by more than two per cent in 2022-23 and grow by just 1.5 per cent, according to CARE ratings research report. India’s merchandise exports had grown 11.1 per cent through the first eight months of the year to touch $295.3 billion, but the rating agency cited recent months’ trend of moderating exports to reckon that the full-year exports growth would be 2.3 per cent lower than the record $422 billion achieved in 2021-22. This is not an encouraging situation.
On the positive side, Reserve Bank of India came out with data to suggest that bank balance sheets are showing double digit growth in 2021-22 after a seven year gap. Credit growth has hit a 10-year high in the first half of 2022-23. Banks may have to raise deposit rates further to meet the surge in credit demand. According to RBI report on trends and progress of Banking in India, there is also a decline in gross non-performing assets—that is the bad debt. As credit growth picked up and deposit growth moderated, the incremental credit-deposit ratio reached a four-year high.
Loans to Indian banks rose 17.5 per cent in the two weeks to December 2, 2022 from a year earlier, while deposits rose 9.9 per cent. The Indian economy exhibited signs of a gradual strengthening of the growth momentum, drawing from macroeconomic fundamentals, RBI said adding this had come amid an uncertain global environment caused by globalisation of inflation, energy and food shortages, and synchronised tightening of monetary policy worldwide. The gross NPA has come down to 5.8 per cent by March, 2022 from close to double-digit four years ago.
Another positive development is that the massive investment in infrastructure development has helped to kick-start the economy. This is evident from the fact that steel demand is buoyant and has recorded a high 6.8 per cent growth. The steel production has peaked at 120 million tonnes this year and steps are afoot to push steel production to 200 million tonnes annually in the coming years. With construction too picking up there is some surge in employment as well and there are already signs of many companies shifting manufacturing base from China to India.
One area that has not yet been addressed is MSME sector, which has been struggling since demonetisation in 2016 followed by tardy implementation of GST and lockdown in recent years due to Covid. All these had made Indian economy witness jobless growth. To reverse this trend India needed to do something drastic in the coming months and the budget on February one, offered an opportunity for some big-ticket reform to provide much needed lending to the MSME sector.
As noted economist Raghuram Rajan says with increasing digitisation and GST, the economy was getting increasingly formalised. This is a positive development but in the process, the MSMEs, which largely depended on informal lending, was not in a position to bear the huge cost that arise with the formalisation of the economy. The government will have to resolve this dichotomy to put this sector back on the rails. This will benefit not only stepping up employment but also manufacturing and exports.
The government should think out of the box to come out with a credit card system like the kisan credit cards to deal with financial woes of MSMEs. The buzz now is that government is giving finishing touches for a merchant credit card scheme for traders and Vyapar credit card for micro units to provide credit support and incentivise micro industries to enter the formal financial system. Ninety-percent of 6.3 crore MSMEs in the country are micro industries. This follows the recommendation of a Parliamentary Standing Committee. MSMEs provide 11 crore jobs in the country. The idea is to incentivise roadside vendors, kirana and micro industries to enter the financial system. The cards will provide loans at subsidise rates and there may also be some uniformity in the benefits provided
Overall, the economic picture appears to be mixed for India as it enters 2023 but there are challenges, which needed to be addressed on a war-footing to ensure that the economy is on an even-keel. The Indian economic woes are not insurmountable at the moment and 2023 certainly augurs well for the economy. (IPA Service)