14 NOV,2022 | MEDC
Growth in India's GDP in the current fiscal year is likely to be between 6.5 and 7%. This is lower than the expectations projected earlier. With the given global uncertainties, our economic growth is more likely to be towards the lower end of the range than the upper end. Most national economic forecasters adjusted their growth projections after the first quarter GDP numbers came below expectations. However, more clarity will emerge after the release of the July-September GDP figures, due later this month. More important than just maximizing the growth rate, is to ensure the sustainability of the process. The current constellation of macroeconomic signals is unique, with many signs of strengths coexisting with weaknesses, thus complicating policymaking.
The good news is that the government has already done most of the heavy lifting on the policy front in the past five years. While the haze of macroeconomic data continues to remain contradictory, the evidence of an increasingly stronger economy is also difficult to ignore. Headwinds are real, but so is the innate resilience of our economy. The decline in new Covid cases and anecdotal evidence of a pick-up in economic activity in contact-intensive sectors are welcome at this critical juncture. However, the ongoing global energy crisis is likely to keep our current account deficit on tenterhooks, which could impact economic growth. Staying on the right side of Russia continues to remain our best foreign policy option.
Some of the key risks, both domestic and global, to growth and macroeconomic stability are unlikely to soon abate. The focus thus needs to stay on aiming for long-term macroeconomic stabilization. The global economy is expected to slow further (via a recession) in 2023. It is, thus, imperative to have realistic growth expectations, which would not induce the government to take unnecessary policy risks. Our topmost national economic priority should probably be to reduce our budget deficit to more manageable levels at the earliest by eschewing populist thinking.
For sustainable growth, it is imperative to build resilience into the system. Creating this dynamic advantage calls for a proactive approach on the part of the government. The acid test of resilience is not mere survival or even the restoration of previous levels of economic performance, but the creation of a systematic policy approach that can be deployed repeatedly to obtain competitive advantage in turbulent times … which are now going to increase in both frequency and magnitude. The present crisis should not become a wasted opportunity to improve national economic competitiveness at a time when rivals are distracted. Policymakers need to look through the global storm to see what advantages may be accruing to our economy, and strategically pluck the low-hanging fruits.
There is reason for optimism, but there also remain some legitimate concerns. RBI recently missed the official inflation target and it needs to do more to ensure price stability. In today’s unpredictable global economic environment, high fiscal and current account deficits along with rising inflation do not bode well for macroeconomic stability. Policy needs to take a deep dive into the nation’s tax systems – although they have evolved significantly, there is skepticism about their ability to promote the ease-of-doing business. Resolving these structural bottlenecks will go a long way in addressing our growth challenges as well as easing socioeconomic inequality in the system.
*Picture credit: Google
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Interactive Meeting with Mr. Jaykumar Rawal Hon'ble Minister for Tourism & Employment Guarantee Scheme Govt. of Maharashtra