By K R Sudhaman
After International Monetary Fund recognized India as a bright spot in a gloomy world economy in view of the impending recession, high inflation and none too comfortable geo-political situation. It is true that India is better off than other major economies where the slowdown and economic woes are much more. This does not give us solace as Indian economy too is slowing down though not as rapid and drastic as other major economies. The future is bright but there are major economic woes which need immediate fixing that too through big ticket structural reforms. Immediate short-term prospects of the economy is not that bright as is made out to be as there are cracks in macro-economic fundamentals which were otherwise strong for quite a while now.
Ever since demonetization in 2016, India’s growth story had taken a hit with the economy slowing down quarter after quarter and during Covid Pandemic, it took a further hit as all the economies in the world, slipping into the negative territory. This year the economic recovery was quite rapid unlike other major economies earning kudos from IMF and World Bank. But structural weaknesses have come to the fore making the picture gloomy in the short-term. In the long-term, India could become a $25 trillion economy when it completes 100 years of independence in 2047, but all economic indicators paint a gloomy picture in the next few years. The problems are many.
To begin with, the immediate problems are jobless growth, inflation, sliding rupee, depleting foreign exchange reserves, widening current account deficit, slowing exports growth, poor infrastructure, tardy and delayed implementation of projects, poor health of power companies and bad state of affairs of public enterprises. There are too many problems in the plate and these needed to be fixed to get back to high growth path on a sustained basis. India is needed to have high growth every year in the next couple of decades to ensure that poverty is eradicated and most of the working age population is gainfully employed. With majority of the 1.3 billion population being youth, it is necessary that India achieved a real growth of 6.5 to 7 per cent annually, which meant that GDP growth would have to be at least 8-9 per cent annually.
To elaborate this gloomy scenario, Consumer price index surged to 7.4 per cent in September as against 7 per cent in August. According to Crisil CPI inflation is expected to remain elevated above RBI tolerance band of 6 per cent and with food inflation accelerating, there is bound to be more hardship to particularly poor sections of the society. Steepening and broadening decline in Index of Industrial Production is not a good news for the economy. IIP declined 0.8 per cent on year in August compared to 2.3 per cent growth in the previous month. This marked the third successive month of IIP slowdown, and the first month of decline since February 2021.
Manufacturing sectors drove the decline in IIP. Export oriented sectors were hit by slowing global growth. Domestic-oriented sectors too witnessed falling activity. Crisil, analyzing this data, is of the view that downside risks to the industrial outlook are expected to increase with intensifying global slowdown over the next 12 months. The hit to agricultural incomes from uneven monsoon could hurt domestic demand prospects. Overall the industrial outlook looks bleak in the immediate future, which meant more job losses, hurting poor, lower and upper middle class.
CMIE emphasized that headwinds of high inflation and high interest rates to dampen the festive spirit this year. It also felt that growth projections were being lowered because the estimates projected earlier were too optimistic. But the month of October has started off well with some positives in the economy.
CMIE feels there are some good news with regard to unemployment rate, which fell to 6.4 per cent in August 22. This is the lowest unemployment rate in India since August 2018. According to Mahesh Vyas of CMIE, this is a “bonanza” because it comes along with an increase in the labour participation rate. This meant that employment as gone up and the rewards are spread across rural and urban regions. This may be music to ears, but the fact is that jobs are still scarce commensurate with the requirement and hence it will be quite a while before the job market gets back its buoyancy that existed before demonetization in 2016. Notes economist, Pronab Sen is of the view that India needed to have a real GDP growth of 6.5 per cent at least to ensure adequate jobs are created to meet the growing demand. At the moment “we are not there” as real growth is around 4-4.5 per cent, he rued.
Another positive development, according to CMIE is that consumer sentiments at 30-month high as it vaulted by an impressive 7 per cent in September. Household expressed greater propensity to spend and also were quite gung-ho about their future wellbeing. Both the index of current economic conditions and the index of consumer expectations increased handsomely during the month. Vyas said this is promising as India have changed track in recent months.
Yet another good news is private sector investment. Indian private corporate sector has increased its interest in setting up new productive capacities. New private corporate investment announcements have risen to Rs 4.6 trillion in 2022. But public enterprises investments are not that encouraging. This meant Industrial outlook is not firing on all cylinders.
There are some positives in an overall gloomy economic scenario. There are some signs of recovery but there is a long way to go. Continued efforts to push structural reforms is the key that India returned to high growth path when World economy recovered from the recessionary, inflationary and difficult geo-political scenario. India is certainly a bright spot. But if global recession persists longer than expected and geo-political scenario worsens in months to come instead of improving India’s economic applecart could face problems. So there is need to keep our fingers crossed. (IPA Service)