Analyze the economic status of India vis-a-vis the world economic scenario
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Earlier this year RBI and NSO estimated the GDP growth for the financial year 2021-2022 to be 9.2% with base effect. This comes a year after the 7.2% contraction in 2021 as the pandemic wreaked havoc across the globe, disrupting each economy. With the 9.2% growth in the financial year and recording Double-digit growth in the First quarter of the financial year 2023, India seems to be the second fastest growing economy in the world, currently the fifth largest economy with a GDP of $2.5 Trillion. This growth is outpaced only by Saudi Arabia, as per Economist Intelligence Unit.
Consider the Global trade estimates. The World recorded $7.7 trillion in the first quarter of 2022 with an increase of $1 trillion over a year as per the UNCTAD global trade update, although it is fuelled by rising commodity prices. This has benefitted commodity-exporting nations. The growth in East Asia and the pacific has been low compared to other parts of the world. Rising fuel prices have driven growth in the energy sector across the globe. In the case of India, the exports have risen 6.75% y-o-y and the imports have risen 33% y-o-y. US with USD 119 billion has become India's largest trading partner
As the developed and developing economies across the world slashed rates heavily, the Post COVID world saw hope through demand increase leading to better economic growth. The United States for instance had rolled out the America Rescue plan act 2021 amounting to $1.9 trillion and many developed economies had followed suit. India too had its 20 Lakh crore rupees relief package that came as a savior to the ailing economy. This was necessary as the pandemic-induced lockdowns had disrupted economies, reduced demand, destroyed jobs, and created a food crisis. But the huge fund release seems to have heated the economies and has led to massive inflation with developed economies like the United Kingdom experiencing one of the worst inflation in 40 years! As per World Bank reports, Global growth is expected to decelerate markedly from 5.5 percent in 2021 to 4.1 percent in 2022 and 3.2 percent in 2023. as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
Economies in Africa are still reeling under the pandemic-induced economic problems. Due to intense conflict and backwardness, these countries (not all) are dependent on foreign aid for survival. The lack of medicines has only doubled up their problems. When it comes to South America a ‘pink wave’ of Left oriented politics have swept indicating a need for more government spending and resentment to the lackluster approach of regimes in power in addressing Pandemic linked slowdown. Leftist sentiments are rife even in Europe with Germany and Sweden going the Left way. Challenges are not just limited to developing nations. Apart from massive inflation across the globe, the major crisis due to the ongoing war in Ukraine has asked questions about the recovery trajectory. War has created new bottlenecks in existing supply chains as Russia is an energy exporter while Ukraine exports wheat in large amounts. There is a looming food crisis due to the conflict. The aid from the west and the sanctions and economic countermeasures on Russia have significantly affected International commerce, particularly the energy sector with Europe now facing problems procuring fuel given its dependence on Russia through the Nord Stream Project. The Pandemic itself is now an issue in China with the entire nation going for stricter tracking testing measures and lockdowns, which have created a furor amongst its citizens. Evergrande Real estate crisis is another Sword of Damocles hanging over the Chinese economy. The Belt and Road Initiative known for its copious funding is now being questioned by countries like the Maldives. Climate change effects like the massive flooding in Pakistan which is barely coming out FATF grey list have an uphill task to rebuild itself.
India too is at the boundary of the inflation target fixed by RBI at 4%+/- 2%, with inflation hovering at 5-7 %. The High energy costs due to Ukraine Crisis have widened the current account deficit due to increased imports. This has also shrunk her forex to 545 Billion USD i.e. around 8.4 months of import cover (as per Morgan Stanley). Moody’s and
Fitch has reduced GDP projections for 2022 to 7.7% (from 8.3%) and 7% (from 7.8%). ADB has also reduced the projections to 7%. Recently there was a huge outflow in foreign portfolio investment due to an increase in federal reserve rate hikes.
Still, India has taken a lot of measures to prevent the crisis. It has ensured food security by intervening in markets as well as through promoting sustainable techniques like Zero budget natural farming and Climate-smart agriculture. The massive reduction in Corporate tax in 2020 was a drastic measure making India the most economical nation to have business with. The flagship product-linked incentive (PLI) scheme coupled with increased Capital expenditure has also attracted manufacturers to India. It has helped India diversify the supply chain and meet domestic demands. Maybe, this is why IMF president Kristalina Georgieva recently said that India continues to be a bright spot amid uncertainty across the globe.
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