Executive Director, C Voter Foundation
Amidst news cycles of disasters, wars, terrorist attacks where even children are deliberately targeted and bitterly polarised political and ideological divisions, it is comforting to know that there is some good news around as well. In this case, the good news centres around the Indian economy. A week or so ago, the IMF released revised forecasts of GDP growth axes for major economies of the world. As expected, the news was grim and the developed world including North America and Europe were use about managing to escape recession. The Chinese juggernaut is clearly struggling to sustain momentum (even though data from that authoritarian country is usually opaque) and other emerging economies like South Africa and Brazil too are projected by the IMF to grow at very modest rates. The only silver lining in the gloomy global economic scenario is India that is projected to grow at 6.3%.
There are two astonishing aspects of this high growth rate when you look at basic economic theory. First is that the Indian economy is growing at a healthy clip despite severe global headwinds. One would expect economic troubles around the world to adversely affect India. There have been adverse affects indeed. For instance, the dollar value of exports that adds to the GDP(unlike imports that subtract from the GDP) have been falling for seven consecutive months. Now foreign trade accounts for more than 40% of India’s GDP. How is a shrinking of foreign trade not impacting GDP? Well it is. If the global economy was in a good shape and booming, then the GDP growth rate of India would have been in excess of 8% instead of the projected 6.3%. Perhaps even 9%. When the world emerged out of the horrors of the Covid pandemic, almost all global institutions in January 2022 wee of the opinion that the global economy would grow at more than 3% while India would grow at about 9%. But then Russia invaded Ukraine in February 2022 and all such calculations and projections went for a toss. Instead of recovering handsomely from the Covid pandemic, the global economy stated moving towards a recession. Yet, the Indian economy grew at about 7.3% last year and is projected to grow at 6.3% this year.
How? Two Easton’s are diving this virtuous cycle of growth in India. The first is that the central government has been spending massive sums on infrastructure development. This is called public investment. Private investment, which had virtually stalled in India since 2019 is also making a remarkable comeback. This has successfully counterbalanced adverse global conditions to a large extent. The real beauty of massive investments in infrastructure is that they pay really handsome dividends in the long run by enhancing entrepreneurial, employment and livelihood opportunities. The thousands of kilometres of highways that have been built since 2014 have stated paying dividends. Since public investment on infrastructure has not slowed down, the dividends will keep coming till the end of this decade. The second reason is consumption. Unlike China that has been an investment driven economy for the last four decades, India has always been a primarily consumption driven economy. In fact, private consumption expenditure accounts for almost 60% of India’s GDP. The Covid pandemic did have a severe impact on this component of the Indian economy. In fact, aspirational lower middle class Indians are still reluctant to spend money on buying things like new two wheelers and smart phones. That’s the reason why their sales are still below the peaks achieved before the pandemic. But even for them, growth in consumption has slowed down, not the absolute numbers. In any case, almost all consumer companies are totally confident that sales will boom in this festive season.
Other economies too have tried this tick of the government leading the effort to keep the economic engines chugging. But they have landed up in even more serious crisis. The reason is discipline. Other countries have printed too much money leading to inflation and borrowed too much money leading to debt traps. India has behaved remarkably responsibly in such a scenario. Of all the major economies in the world, India has the lowest levels of debt. Since Lok Sabha elections are coming, there will be a lot of debate over the performance of this regime in terms of economic growth. Opponents and critics will justifiably argue that it has not done enough to battle rising food prices and high levels of unemployment. Some other critics will use rhetoric to lambast the regime as a hand maiden of crony capitalists. Some of the criticism will be valid; a lot of it will be over the top.
But looking at all this dispassionately, I would ague that despite many missteps, the regime has got the big picture right. The digital payment revolution is one instance. The near world class infrastructure is one instance. The cleaning up of the banking system crippled by UPA era “bad debts” is one more instance. The cleverly targeted welfare schemes with minimised corruption is one more instance. The determination to stick with the implementation of the GST is yet another. The pursuit of Make in India despite heavy criticism is another instance. The stubborn insistence to go to moon despite setbacks is another instance. I personally think India has stated doing the things that China did in the 1990s. That augurs well for the future.
This is the personal opinion of the author. The views expressed in this write-up have nothing to do with www.prameyanews.com.