The Indian economy is standing at a very crucial crossroad right now and it cannot be denied that we are in need of dire aid. Indian Economists have been presenting conflicting views about the upcoming trajectory of the economy because fundamentals are all disrupted. While the indices like Purchasing Manger’s Index are crossing the critical 50.0 threshold and earnings of India Inc. improving, the discretionary consumption demand is still to pick slack, despite the continuous liquidity attempts by the Reserve Bank of India. The Indian stock market is booming and the market participants are showing overwhelming optimism, but international rating agencies like Moody’s and the International Monetary Fund have been cutting growth forecasts consecutively in every revision.
And no, this time, we are not going to blame the pandemic for the position the Indian economy is standing at right now. Indian economy’s real output had been contracting for 13 consecutive quarters before the virus stepped foot in the country. This means that the position was already a critical one; the pandemic only sped up the deterioration.
Therefore, we are going to talk in overall senses so we are able to address the problems that crept into the Indian economy, and that needs correcting for the economy to embark on its journey of actual recovery. We are calling it actual recovery because even though the numbers in percentage terms seem to be going up, their base is so eroded that in the real sense, these present a rather shabby picture for the emerging Indian economy.
In the pandemic, India’s economy contracted by a stark 7.3 per cent, more than it has since the Indian post-independence period. The contraction was also much more than the world average of about 3 per cent. The purpose of stating these numbers is to show that during the pandemic, India performed poorly relative to its past record as well as the world. As disappointing as this sounds already, add to this the fact mentioned before. These contraction numbers come from the base at which the economy had been contracting 13 times in real output terms.
Now, let’s talk about what this loss in economic growth, or rather, Income, means for the country’s people in a real sense. The income inequalities in the country had been rising for quite some time now, and it cannot be denied that it has been a different case for the pandemic. It is because Indian billionaires like Gautam Adani earned more than every person on the entire planet, while the middle-class households of the country pushed below the poverty line significantly. However, before we talk about this gap in wealth creation, it is very important to shed some light on the poverty scenario of the country.
India’s real poverty uplifting started happening after the 1992 reforms, when India lifted more than 200 million of the poverty line, as per the Headcount Index and the World Bank’s report. This came with respect to the country’s transition from primary sector-led growth to tertiary sector dependence thanks to the economy’s opening up. Well, what the pandemic did was curb just that. With a restriction on mobility, both within and outside the countries, India’s contraction was deep in both relative and absolute terms.
This directly correlates to the erosion of decades of work put into the mitigation of poverty in the country, as evident by the substantial shift from the middle income to below the poverty line population of the country.
This can be seen from the research conducted by the scholars of Azim Premji University that estimated that 230 million people may have fallen below a poverty measure of Rs 375/day in rural India and Rs 430/day in urban India between January and October 2020. Following this was the Pew Research Center estimates that concluded that the number of Indians living below a more conservative measure of $2/day increased by 75 million in the space of a year since the pandemic struck.
Here comes the reason for our emphasis on growth. The post-liberalisation years that actually saw mitigation in poverty levels of the country were due to the fact that India’s GDP nearly doubled during the time, in alignment with a sharp rise in income of the country. Now, the pandemic eroded not only that income base but the household savings as well, hampering the prospects of income in the near future too. One key takeaway from this discussion is the correlation between poverty alleviation and faster economic growth.
Therefore, if there’s any way to help the poor get back on their feet, it would go through the route of rapid economic growth. And we are not saying it’s the only way to go. It is because the social welfare scheme and redistributive aid can also work as allies of reducing poverty in the country, both of them alone would not suffice the position we are standing at right now. That is, there’s no doubt that the Indian government needs to shift its focus from trickle-down to bottoms-up, but that needs to come hand in hand with effective economic growth.
But the question here is, do the short term prospects of the country indicate favour to economic growth? Honestly, both the external and internal conditions can go haywire in the time to come with respect to how the prospects of growth look like.
External factors concerning Indian economy-
Even though the spur in global demand is creating demand for exports in the country, the situation may go a little downhill in the time to come because of the current nuances. It is because the global demand created is on the back of normalcy in the advanced countries, which means that the monetary policies that have aided close to zero interest rates right now would see tightening as we move forward.
A sharp rise in the Indian public debt levels in the advanced countries following the fiscal driven recovery from the pandemic also indicates a prospective belt-tightening, contracting demand as we move forward. The increase in crude price levels is also another threat that is circling the world at the moment.
Internal Factors wavering economic growth-
Domestic demand still hasn’t picked pace, which is one of the most worrisome factors behind this anaemic growth. Indian Production has reacted positively to the global demand and upliftment of mobility restrictions, even though the threat of a third wave grows strong.
Sectoral growth is not being translated into job creation, which means that unemployment still remains a stagnant threat. The income inequalities are rising at an unmatched pace and are evident from the seeming boom in the stock markets.
Economic uncertainty surrounding the country has led to the investment contraction, painting a shabby picture for the growth in the longer term. India Inc. is on a deleveraging spree showing their lack of optimism in the economic future of the country. The state of public health is also endangered thanks to the slow and inefficient vaccination drive being administered in the country.
Given the intense absence of accessible financial assets, the most encouraging way forward for the public authority is to accept administrative changes in labour and land markets which go past gathering various codes into one head and considering it a chance. India’s growth solution would have to go through large-scale low-tech manufacturing, leading to growth in the secondary sector that the economy never had.
This is the solitary area that can utilize the 10 million new specialists joining the work market yearly at compensation that mirror their yearnings. Without changes that diminish the dangers of recruiting work and procuring land, this area won’t develop. Furthermore, public area divestment must be embraced on a conflict balance.
The financial expenses of profound changes are low; however, their monetary returns are conceivably high. Obviously, significant changes have possibly high expenses on the politically front, inducing a behaviour involving a trade-off.