How India Fares On Economic Indicators

Given even half a chance, politicians of all hues will indulge in breast beating. The country was witness to this once again when in the course of 2022-23 budget presentation finance minister Nirmala Sitharaman claimed India’s expected GDP (gross domestic product) growth of 9.2 per cent during 2021-22 would be highest among all large economies. This “sharp recovery and rebound of the economy is reflective of our country’s strong resilience.” In the meantime, however, the Manila headquartered Asian Development Bank in its recently released ‘Asian Development Outlook 2022’ report says India’s GDP last year ‘likely’ grew 8.9 per cent. Mark the word likely in ADB’s calculation.

Whatever 2021-22 growth is finally recorded, Sitharaman could always say in her defence that she presented the budget two months before the closure of financial year and she was only referring to advance estimates. A Trinamool Congress MP was certainly not fair in saying the FM was speaking with ‘fork tongued’ in making such a tall claim for the economy under her charge. No doubt she was boastful, for last year’s growth should ideally be seen against the background of GDP slipping 6.6 per cent in 2020-21. And the 2019-20 GDP growth was a dispiriting 3.7 per cent, very closely approximating the Hindu rate of growth coined by economist Raj Krishna.

The whole of 2019-20 when the bite of Covid-19 pandemic manifested in a series of deadly infections, lockdowns, supply chain disruptions and large-scale migration of labourers to their villages and small towns suffering in the process unbearable hardships was a washout for all economies and India was not an exception. Even while fears of new Covid waves remained throughout the year that closed in March 2021, any relief on that count was negated by high rates of inflation.

Retail inflation, as measured by consumer price index combined (CPI-C) was 6.6 per cent during 2020-21, breaching the Laxman Rekha or threshold level of 6 per cent. But with the revival of economic activities in the post Covid 2021, high inflation became a global phenomenon. For example, among developed countries, the US experienced inflation of 7 per cent in December 2021, the highest since 1982 and in the emerging economic bloc, Brazil suffered price rise of 10.1 per cent in the same month. Expectedly inflation at the rate of 6.6per cent became a source of major popular discontent leading New Delhi to take supply side measures and that tamed it to 5.2 per cent in 2020-21 till December.

But any comfort on inflation front unfortunately for the government and the masses proved short lived. Energy prices were already high when President Vladimir Putin sent his troops to Ukraine in an act of aggression on February 24. That sent oil and gas prices through the roof. As oil and gas and aviation turbine fuel invite very excise duty and also stiff levies at the state level, the two commodities not being covered by GST (goods and services tax), their prices are now greatly stoking inflation. Look at prevailing domestic LPG prices from PPP (purchasing power parity) dollar angle, truly reflecting the local currency’s purchasing power and the income level of average Indian, these are the highest in the world. As for petrol, we pay the third highest price only after Sudan and Laos. Indian oil marketing companies have started buying Russian crude at discounted rates.

As is to be expected, Indian buying of Russian crude has not gone down well with Western nations sanctioning the aggressor country on a growing number of counts. For example, the US has banned all energy supplies from Russia and the UK is working on phasing out oil and coal of that origin by yearend. Whatever sins Russia may be committing, India has deep political and economic ties with that country and the world is aware of that. India has served notice that it will continue to buy crude oil from Russia to protect its own economy.

In any case, fuel prices continuing to rise to new record levels are having an inevitable domino effect with food, edible oils and stationery prices getting revised periodically in sync. A survey conducted by the leading Bengali daily Anandabazar Patrika of families in the monthly income bracket of ₹15,000 to ₹45,000 about how they are coping with the sudden major spurt in inflation found one common answer that even after doing with less of every single item of food and other daily necessities, their savings are going for a toss. Some have lost the capacity to save. Others have started using up what they saved in the past. Experiences of families with identical income or even a little more in other parts of the country are either faring the same or even worse. If this is the condition of people with a regular income, whatever is the size, then think how badly the ones who lost their jobs during the Covid and never got them back or whose deep salary cuts are still to be restored are doing.  

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Mercifully, the unemployment rate, according to the Centre for Monitoring Indian Economy (CMIE), has started declining with economic activities slowly gathering steam. CMIE’s monthly time series data shows unemployment rate was down to 7.6 per cent in March from 8.10 per cent in February. Economist Abhirup Sarkar, however, makes the pertinent observation that even “this unemployment rate is high for India which is a poor country. Poor people, particularly in rural areas cannot afford to remain unemployed, for which they are taking up any job that comes their way.”

Even while the overall national unemployment rate continues to fall, the ranks of unemployed in some states remain worryingly high ranging from 14.4 per cent for Bihar to 26.7 per cent for Haryana. The accepted fact remains inflation has a negative impact on growth and real per capita income. Inflation is not neutral. In no case does it support growth. That is why on the occasion of release of monetary policy the other day, Reserve Bank of India (RBI) governor Shaktikanta Das said: “In the sequence of priorities we have now put inflation before growth. For the last three years starting February 2019, we had put growth ahead of inflation in the sequence. This time we have revised that because we thought that the time is appropriate and that is something which needs to be done.”

Largely caused by Ukrainian war, the inflation outlook has worsened globally as also for India. RBI has revised upward its inflation forecast for 2022-23 to 5.7 per cent from the earlier 4.5 per cent. If the war persists and sanctions further tightened, raging inflation will not be doused. In fact, inflation here could very well cross the Laxman Rekha as the year progresses. If inflation stays this high what option could be there for RBI but to cut this year’s growth forecast to 7.2 per cent from the earlier 7.8 per cent. Inflation and growth outlook being so fluid, Das’ observation that “we are not hostage to any rulebook and no action is off the table when the need of the hour is to safeguard the economy,” is an important pointer to RBI monetary policy staying flexible.

Commodity prices across the board from oil to steel to aluminium and to copper have all significantly appreciated. This is particularly pinching for the micro, small and medium (MSME) sector, which has a share of around 30 per cent of GDP and provides employment to 111 million. High input prices have pushed up working capital requirements of the sector. Will that incremental financial accommodation be available from banks? Unlike large enterprises, most MSMEs don’t have reserves to fall back upon. New Delhi must see that the MSME sector having a share of close to 50 per cent of total national exports is able to walk through difficult times unscathed.

Industry as a whole has welcomed the government investing heavily in infrastructure projects creating demand for products of a host of industries. The combination of mega capital expenditure programme that hopefully will bring Indian infrastructure close to world class resulting in marked fall in logistical cost and supply side measures is the response expected from the government. Private sector too is not found wanting in announcing major investments and this is led by the steel industry with investment commitment of over ₹1,000 billion in new capacity building.

In the challenging circumstances, Indian farmers well deserve a pat on their back for agriculture and allied industries are expected to have recorded growth of 3.9 per cent in 2021-22 against 3.6 per cent in the previous year. There is no promise that the coming days will bring any relief. One may, however, see a silver lining in the Economic observation: “Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves (they stood at US$634 billion on 31st December 2021). This is equivalent to 13.2 months of merchandise imports and is higher than the country’s external debt. The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.”

Weekly Update: Healthcare & Growth Are Two Things Modi Must Focus On

The big bang statement that India’s budget could have made wasn’t made. I am talking about healthcare. India spends under 1.8% of its GDP on healthcare, an amount that is far lower than what it should be ideally. The inadequacy of India’s healthcare infrastructure could not have been demonstrated better than it was during the waves of the Coronavirus pandemic that swept across the country. Millions of people suffered as hospital beds and oxygen tanks were in short supply. Much of the havoc that got created and was reported about in the media centred around India’s larger cities but the fact is that the situation was far worse in rural and semi-urban India.

The latest budget could have addressed the healthcare crisis with more focus. For example, moves to educate, train and deploy more medical and paramedical service providers, particularly in rural India. As well as measures to ensure that there is more investment in expanding the number of beds that are available for patients. According to World Bank data, for every 1000 people there is just 0.5 hospital bed available in India and that compares rather badly to even other developing countries. 

Some analysts have commended the budget for its growth-orientation. Primarily this centres on the indication of the government’s willingness to trade off higher inflation rates (at least in the short term) with higher investments. A policy that accommodates higher inflation rates for future growth potential can be non-populist and in a year that will be marked by several important state elections that can be a risk for a regime (the Bharatiya Janata Party-led ruling alliance) that has an avowed objective to rule in every state. But the government appears to have taken that risk. Now, it is to be seen whether investment and, therefore, growth is spurred.

Economic growth has become an area of serious concern in India. A statistical analysis shows that between 2011 and 2020, India’s growth slowed down while inflation soared. Prime Minister Narendra Modi had promised that by 2025, India’s GDP would reach $5 trillion. That is most unlikely to happen. Pre-Covid estimates showed that it could be far lower, say, at $2.5-2.6 trillion.

Independent pre-Covid estimates for 2025 had touched $2.6 trillion at best. The pandemic has shaved off another $200-300bn. Post-Covid, it could be lower by another $200-300 billion.

Covid, however, has not been the only dampener for the Indian economy. Hasty policy decisions such as the rush to roll out the GST tax regime and sudden decision to demonetise the rupee hit the economy hard. India’s GDP growth was at 7-8% when the ruling regime came to power in 2014. By the fourth quarter of 2019-20, it was down to 3.1%. 

The situation is far worse on the employment side. Given the Indian population’s relatively young demographics, India needs 20 million jobs to be created annually. Under the ruling regime, the number has been much lower. In 2017-18, according to official estimates, unemployment was at a nearly 50-year low: 6.1%. Since then, a Centre for Monitoring the Indian Economy (CMIE) estimate suggests that it might have doubled. Also, according to Pew Research, an estimated 25 million people have lost their jobs since early 2021 and nearly 80 million people might have gone back into poverty. 

India likes to compare itself with China, where the economy grew exponentially primarily because of a huge thrust on manufacturing and marketing. When the Modi government came to power, it unveiled the ‘Make in India’ policy to emulate the Chinese experience. By simplifying procedures and introducing manufacturing hubs where tax and other incentives were to boost manufacturing, the regime hoped that manufacturing would comprise 25% of the GDP. But nearly seven years later, manufacturing’s share remains at a paltry 15%. And the number of people employed in the manufacturing sector is down by half.

Consequently, exports have stagnated at $300 billion for the past 10 years with India losing market share to other developing countries, including tiny Bangladesh whose export growth, driven by the garments industry, has been significantly impressive.

Not all is bad, though. In basic infrastructure there have been strides. Under the Modi regime, India has been building 36 km of highways and roads every day. Under the previous government, it was barely 8-10 km. Installed capacity of non-conventional energy, mainly solar and wind, has doubled in the past five years and India will likely achieve the 2023 target of175 gigawatts.

More Indians have joined the formal sector for employment, although still too many (half of the nation’s workforce) are employed in agriculture, where productivity is low and where very little growth has taken place over the past 10 years.

There are many complex problems that policy makers attempting to boost India’s economy face. But if they were to focus on two of the most important ones they ought to be these: First, healthcare because India spends far too little on that sector. And second, boosting growth by encouraging investments. India’s latest budget attempts to do the latter. But will that be enough?

On a recent Sunday morning, the economist Kaushik Basu, a professor at Cornell University, tweeted tellingly:

“2016-17: 8.2%

2017-18: 7.2%

2018-19: 6.1%

2019-20: 4.2%

2020-21: -7.3%

These are India’s growth rates. 5 years, with each year’s growth less than previous has never happened after 1947. Sad. Let us not live in data denial, reducing everything to politics.”

Union Budget 2021-22

Watch – ‘Health, Defence Important; What About Inflation?’

Common people have given a mixed response to Union Budget 2021-22. While some feel that there is little effort to hold back rising prices in Budget, there are others who feel the financial document has kept its focus on two biggest challenges before the country: outside threat on border and inside dangers of pandemic.

Although relief to senior citizens is appreciated, rise in petrol price has been a big concern as it will only lead to overall increase in commodity prices.

Watch the full video here

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Covid-19 And Asian Economies In 2021

We just left 2020, a year many wished was a bad dream. With a once-in-a-century health crisis sweeping across the world, it was one of the worst years in recent memories in more ways than one. The crisis tested each economy’s resilience of the countries and forced political and business leaders to lead from the front.

Governments introduced an unprecedented raft of fiscal measures to help avert further economic damage and implemented various support measures to reduce suffering by its populations. Business trends were accelerated, especially those that facilitated safe distancing, and this necessitated agility and creativity from businesses. It made champions of those that succeeded and unfortunately resulted in the collapse of those that were unable to adapt.

Vaccines for the Covid-19 pandemic were rushed out in record time but their long-term efficacy is unknown as their urgent need limited the ability to conduct lengthier trials and tests. Experts caution that even if the vaccines prove effective, it will take a while, perhaps until the end of 2021, before the virus comes under control globally. It will just be one tool in the effort to fight the pandemic. Cases in each country across the world needs to be very much lower before life can go back to something resembling normalcy.

To a certain degree, how each country’s economy performed in 2020 and is expected to do in 2021 is a reflection of how they handled the pandemic. Without effective control of the virus, normal business activities cannot resume. Consumers will not feel safe to visit shops and restaurants as they had done in the past. Some businesses will also have to continue to accommodate health precautions as they operate, hindering productivity.

It is, therefore, no surprise that Vietnam, which was able to control the virus at a relatively low human and economic cost, appears to be the shining economy among Southeast Asian countries. Based on World Bank data, its GDP is expected to grow 2.8 per cent in 2020 and projected expand another 6.8 per cent in 2021 for a net growth of over 9.6 per cent in the period from 2020 to 2021.

In contrast, all other major economies in Southeast Asia are expected to post negative GDP growth in 2020.

Based on World Bank data published in October, India’s economy is expected to contract 9.6 per cent in the 2020-21 fiscal year which starts in March 2020. As such, the full economic impact caused by COVID-19 is reflected in the numbers and hence not a fair direct comparison with the economies of Southeast Asia. It is expected to recover to post a growth of 5.4 per cent in FY 2021-22.

However, due to positive news on the COVID-19 containment front and the possible resultant easing of movement restrictions, Moody’s Investors Service in November raised its forecast for India’s growth to negative 8.9 per cent for the calendar year 2020 from negative 9.6 per cent. The rating agency forecasts a growth of 8.6 per cent in 2021.

The tourism-dependent economy of Thailand appears to be most impacted by COVID-19 economically. The Thai government estimated in 2019 that tourism accounts for 20 per cent of its GDP and is a major creator of jobs. This together with high private-sector debt and political uncertainty has resulted in a slower recovery than most other countries.

The World Bank projects that Thailand will have a net GDP growth of negative 3.4 per cent for 2020 and 2021. It is not likely to be able to restore its economic activity to 2019 levels till 2022. Singapore is in a similar situation with its economy expected to contract 6 per cent in 2020 and expand 4 per cent in 2021.

Singapore is the only one with what is considered a mature and developed economy among those countries mentioned in this article. It was already growing at a slower rate plus its economy is very much reliant on external trade with local economic activity unable to sustain its usual growth trajectory.

Pakistan’s GDP is estimated to have declined 1.5 per cent in the fiscal year ending June 2020 and forecasted to grow 0.5 per cent in 2020-21 for net GDP loss of one per cent although this has many dependencies. In normal times, Pakistan enjoys of long-term economic expansion of four per cent.

The other Southeast Asian nation which will emerge from 2020 economically battered and not able to recover till 2022 is the Philippines. Based on World Bank’s forecast published in October, its economy will shrink by 6.9 per cent in 2020, grow 5.3 per cent in 2021 for a net loss of 1.6 per cent. In November, World Bank revised this estimate downwards to negative 8.1 per cent in 2020 and 5.9 per cent growth in 2021 for a net negative figure of 2.2 per cent. They attributed this to “multiple shocks” that has buffeted the country from the Covid-19 health crisis, typhoons, and the global recession.

It is commonly believed that the stock market is a window into the future. Therefore, it is not a surprise that for 2020, the best performing market in Southeast Asia is Vietnam whose economy is also expected to expand the fastest. This is based on the Vietnam Ho Chi Minh Stock Index which tracks the performance of over 300 equities listed on the Ho Chi Min and Hanoi Stock Exchange in Vietnam.

The index ended the year about 14.3 per cent higher than when it started. Most of the other major Southeast Asian indices closed the year down except Malaysia’s KLCI which was up about one per cent. Singapore’s Straits Times Index was the worst performing closing the year down almost 12.2 per cent.

The Indian financial market was surprising resilient with the SENSEX posting a gain of over 15 per cent in 2020 which is even higher than Vietnam’s. With events of 2021 still up in the air, and with India’s economic activity as well as the course and duration of the pandemic hard to predict, could the market be betting that the economy will outperform economists’ expectations in 2021? (ANI)