Express View on India’s economy: Sweet and sour

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We are better placed than others, but pain points persist. Policy must focus on raising potential for growth.

India is in a geoeconomic sweet spot. The ruling dispensation’s careful navigation of the changing global scenario following the Russia-Ukraine war has created space for the country to buy oil from Russia despite sustained pressure from the West and at the same time deepen its economic and strategic engagement with the latter. Coming at a time when many countries are struggling to maintain their economic momentum, with the economy seeming to hold up, India is in a relatively better position. The International Monetary Fund has recently raised its forecast for the country’s growth to 6.1 per cent. Inflation has remained below the upper threshold of the central bank’s inflation targeting framework. The country’s forex reserves are back to around $600 billion. And the government has managed to sustain its infrastructure spending across the country. In this scenario, multinational firms are increasingly looking at the country as part of their China plus one strategy. This optimistic assessment of the state of the Indian economy has been put forth by Nilesh Shah, who is a part-time member of the Prime Minister’s Economic Advisory Council, at an Indian Express Idea Exchange. However, as Shah has also pointed out, there are pain points as well.

Growth has been uneven. Large sections of the population aren’t benefiting as much. As Shah says, those at the bottom half of the pyramid haven’t participated in the growth story, especially post Covid. There are several indications of the distress. Real rural wages have been almost stagnant. More households are availing work under the MGNREGA as compared to pre-pandemic levels. FMCG companies have not seen much volume growth in consumer staples. Two-wheeler sales are lower than pre-Covid levels and non-suburban railway traffic has dropped. And though the underlying conditions for a pick up in investment activity exist — healthy corporate sector and bank balance sheets — there aren’t enough indications of a broad-based pick up.

Clearly, there is no room for complacency. While several countries have witnessed spurts of growth, a very small subset have actually managed to grow at high rates over decades. As per a recent study by economists at the RBI, the Indian economy needs to grow at 7.6 per cent over the next two-and-a-half decades to achieve high income status by 2047. A business as usual approach will not suffice. As the study also points out, if status quo is maintained, the economy is likely to grow at a slower pace than what is required to achieve the target. The policy framework must be guided by the objective of raising the country’s growth prospects over the medium to long term. This requires concerted and urgent action.

Source: Indian Express