On Economy: The year ends with hope and despair

The year ends with, as far as the economy is concerned, a mixed bag of despair and hope. The hope stems for what the World Bank has pointed out: the Indian economy has shown great resilience. The despair is rooted in a dismal global scenario.

In other words, the hope is all about continuation of domestic growth, which will not only depend largely on the Budget 2023 for right directions, but also on the government’s overall policy directives. The despair, on the other hand, denotes lost opportunities internationally that were so much coveted and valued for post-pandemic India. Among the major causes of this global uncertainties are the dismal performance of many big economies, high rate of inflation and consequent policy rate hike by the central banks, and Russia’s invasion of Ukraine, all beyond India’s control.

About internal inflation, India has paid for its overpricing of the oil products. It helped inflation to jump up, and now it is being imported, mainly from the US, whose Federal Reserve has already made it clear that the interest rates will stay high throughout the coming year. It means India too will have to keep the rate high, not to fight inflation so much, but to stop flight of foreign investment.

The good news on this front is that the international crude oil price has been tamed to a great extent. After a high of 130 US dollar in March of this year, it is now hovering around 83 US dollar a barrel. Additionally, India has the benefit of having cheap supply from Russia. Despite the sanctions, so far India has been able to convince the west on the point of its pressing need of this import from Russia. So, as of now, there is not much fear of the crude oil adding inflationary pressure that can come down to some extent in 2023.

Now come to the point of the interest rate playing the bone in the throat. The question is though India needs to grow will it be able to maintain the momentum in the face of global headwind?

The World Bank has said the country is showing higher resilience to global shocks, thereby implying that India may become the forerunner in the process of world recovery. As this calendar year comes to an end, it is being assumed that FY2022-23 will have a growth rate between 6.5 to 7 per cent.

Compare it with the global scenario. The International Monetary Fund has projected that 43 percent economies (31 out of 72) will face a contraction in their real GDPs in 2022-23. Among the worst affected are three countries whose GDP is more than US $1 trillion: the Russian Federation that may contract by 2.3 percent, Germany by 0.3 percent, and Italy by 0.2 percent.

On this backdrop, India’s performance will be considered very good if it stays above 6.5 per cent.. The reason behind the World Bank praising the resilience of the Indian economy is the fact that India can survive well by insulating it from global shocks. In other words, India’s growth is being propelled by internal consumption.

But will it help in the coming FY2023-24? The question arises because of the despair that is now a global phenomenon.

The despair factor is crucial because it will not only narrow down the export, but may affect India’s upcoming free trade agreements, particularly with the EU as European countries are likely to see a backlash of the people against such arrangements. However as the old organizations have failed and the WTO has become feckless, the bilateral trade agreements are the only way to move forward. If free trade agreements are affected, it may in turn affect India’s emerging role in the global supply chain.

However, India is now having the presidency of G20, and it may try to leverage it as far as possible to tilt the balance towards the Global South to which it itself belongs to. G20, the organization of 20 biggest economies of the world, has now emerged as an alternative to WTO. India has played a great balancing role between the West and Russia, and now it should try to unify the world wracked by great divides in the fields of trade, technology and ideology. If it succeeds to some extent in achieving this, it will come as a great relief for India and the world.

That is why the economic horizon is no longer limited to finance or economic ministries only, but has expanded to the entire government. The challenge is even bigger, because now only growth will not suffice, but it will have to be sustainable growth in the face of climate change. The world is still walking towards the tipping point, and if it reaches that point India will be affected severely along with a large part of the world.

It is a mixed bag this year, and how the next year will unfold depends largely on the able leadership of the government. A good thing is that it may also become a deciding factor for the general elections to be held in May 2024, and so it will compel the union government to give the best of it, that too by balancing economic growth and welfare of the vulnerable sections. – IANS