Unleashing The Powers Of An Economy Like India’s

Unleashing the powers of an economy like India’s has unexpected and altogether wonderful outcomes.  The first thing to go was the begging bowl. Next the mindset that poverty was our destiny. Third was the renewed awareness of our diversity of topography and considerable natural and intellectual resources.

Power flowed through our veins. It ran on, amongst the gullies and pathways, the wheat fields, flowers in the meadows, unfettered by low expectations, watched over by soaring eagles and kites. It was full of colour and sound, music of wind instruments, accompanied by the beating of joyous drums.

This is our 75^th year of independence awash in the tricolour and milestones of many accomplishments. This, all the more remarkable because most of the shackles were only removed in 1991.

Slowly, the meaning of not being bound hand and foot has dawned on an entrepreneurial people. We became many things thereafter. We became food surplus, milk surplus, information technology behemoths, hubs for automobile manufacture, electronics, textiles, garments, design, digital networks, start-ups, arms production, producers of a new kind of proud, confident, patriotic, film.

We acquired a new and vibrant leadership.  We were not ashamed of our long suppressed culture and traditions anymore.  As we changed, we became appreciated for our unique Sanatana Dharma that coerced no one. And yet, it was the oldest religion in the world by centuries going into antiquity. A religion that has defied and triumphed over marauders and invaders, and new-fangled isms, all baffled by its vibrant paganism, tenacity, sheer durability.

The age-old eternal India is one thing, but the West is scratching its head at how India has good ‘macro-fundamentals’ in economic crisis ridden 2022.

How did India possess and retain ‘good bones’ when all the calcium of the economic thinkers, prize winners, Nobel laureates, the Left, Right and Centrist thinkers, are supposedly in the West.

Except, that is, for the tokenism of a couple of inevitably Leftist Bengalis, well-paid in Western universities. The duo, adorned with Nobel prizes, chosen, not for save-the-world growth strategies, but for their give-it-away poverty/welfare economics. A kind of thesis for emerging nations. There was nothing in their theories about revenue generation. How then are poor nations going to give it all away? Strange how the Nobel Committee thought a how-to -spread-wealth-and-resources to the poor was striking enough. Not just once, but twice. It is a signal lesson that the overdone welfarism of many European countries, including Sweden, France, Germany, Italy, Spain, Portugal, Britain, is now hard to sustain.  

Not surprising therefore, that a Covid pandemic, followed by a provoked war in Ukraine, some three years in the mix, has got the West to the point of an economic crisis. It is contemplating recession, food shortages, a cold winter with gas and fuel rationing, unprecedented inflation.

It has brought its own everyday life to a sorry pass. In the past, such a state was associated with smirking condescension towards third-world countries on the other side of what was assumed to be a permanent North-South divide.

Their much-vaunted sense of organisation and order is in shambles. What are the true wages of unsustainable debt in horribly slowed economies? Where are the markets for anything except armaments?

Who can answer for the hundreds of economic mistakes that have produced a 18^th or 19^th century style bust in the age of information and 24x7 global connectivity?

American inflation is at a 40 year high at 8.5%, and the EU has 7.5%, when both are used to under 2%. Growth is at 3% odd on both sides of the Atlantic currently, but if recession sets in, it could drive it into the negatives.

Will the massive American arms sales to Europe keep it afloat rather better than the EU and Britain reeling under the side-effects of the sanctions it has imposed on Russia?

India, by way of contrast, is looking at 7 to 7.8% growth this year (The World Bank projects 7.5%), based on better agricultural production and a revived rural economy after Covid.

India managed Covid better than any country in the world, inoculating over 1 billion people, exporting and giving away vaccines to needy countries. It took economic measures such as free grain distribution to the poor without affecting the inflation statistics. We prevented dire hardship.

Ukraine has not affected India’s food surplus situation, and we have exported grain to a number of countries who asked for it. The relatively modest inflation India is facing is due to the rise in fuel costs. 80% of our ever-expanding crude and gas requirements, are still imported. Current spike in oil prices is likely to subside as low growth or recession in the West cools demand.

Petroleum based fertilizer imports have also been adversely affected with scarcities and soaring prices. This is being mitigated by the development of liquid urea in-country, and projected self-sufficiency with it in due course.

The Reserve Bank of India, (RBI projects a growth of 7.2% for this fiscal), had cut interest rates multiple times to tide over the Covid years. It is now raising them to curb inflation per classic economic theory. But it must be remembered that imported inflation via fuel prices will not respond very much to this measure. The Centre and several states have also cut taxes on retail fuel at the pumps to help the economy.

Retail inflation, riding at 7.04% in May 2022, is easing, but is quite a bit higher than the RBI’s upper bar at 6%, and is now ongoing for the 5^th month.

This is similar to what America is doing to bring down inflation, thereby slowing down business growth in an environment reared on zero interest rates since 2008, accompanied by billions of dollars in stimulus. Many American businesses are giving up, unable to rise to the challenge in the face of flaccid demand.

In India’s case however, there is little or no chance of rising interest rates resulting in recession. Demand has revived. We are headed towards business as usual.

In 2021-22, the Indian economy grew at 8.7% up from 6.6% the year before and we are looking at upwards of 7% this year too. This is the highest in the world amongst major economies, with China coming in next at 5.5% growth.

However, the pressure on the rupee versus the US dollar has seen it fall relentlessly over the years to nearly Rs. 80/1 $ because of almost all imports, particularly massive amounts of petroleum, being designated in dollars.

This is beginning to change, with the Rupee-Rouble trade in Russian oil and with other rupee denominated trades. As the Indian economy grows to $5 trillion and beyond this situation will rectify.

Right now, it’s the oil exporters who are seeing an appreciation in their currency and growth in their GDPs. Saudi Arabia has posted a 12% growth in its GDP based on petroleum sales and profits.

In India’s case, with a fall in the rupee of under 1.5% over the 12 months past, it would have been worse if not for robust exports and tax collections. Manufacturing has revived against fresh demand, with the S&P’s Global Manufacturing Purchasing Manager’s Index (PMI) coming in at 54.6 in May 2022, keeping above the 50 mark for 11 months in a row. Below 50 would signal a contraction.

On its part, credit offtake is also doing well, with non-food credit at 11.3% in April 2022 and loans to agriculture at 10.6%. Personal loans also grew to 14.7% in April 2022. An ongoing good monsoon will also help the economy. The launch of 5G later this year will boost digital India substantially for the rest of this year and going forward.

So what do we do right? It is an innate conservatism that saves India every time. This is how we survived the crash of 2008 that hurt America enough for it to run stimulus packages at nearly $ 20 billion a month throughout the Obama presidency. In Europe, entire countries nearly went under, because they were so dependant on the same borrow-and-spend model from the Clinton era onwards. Places like Greece are still teetering on the brink.

Indian borrowing, particularly external borrowing, has always been on a tight leash. Even after the first bout of Covid, at the end of March 2021, it was at $570 billion or 21.1% of  the debt to GDP ratio. Many countries in the West owe multiples of their GDP in external debt. This is what differentiates India, even from the bankrupts in its immediate neighbourhood. India is a wonderful client for multilateral agencies such as the World Bank and IMF because we always pay back our interest and principal instalments on time.

Domestic borrowing however is high, but not alarming, as a proportion of growing GDP. It was at Rs. 95,83,366 crore, a massive 48.5 % of the debt to GDP ratio, in March 2021. Together, both external and internal debt stood at 60.5% of the debt to GDP ratio, big, but small when compared to other nations. It jumped more than 10 percentage points from the year before because of the demands of Covid management.

What about employment given our burgeoning population?  The political parties always promise jobs, but the fact is that neither government jobs or those in private industry including the medium and small industry sector (MSME) can cope with the supply of labour.

The only way forward is self-employment of various kinds, entrepreneurship, the aspiration to create jobs for others rather than seek one. All over the emerging economies and the developed world, the overall job market itself is shrinking, because of the increased use of technology, a trend that cannot be reversed competitively.

Jobless or certainly low job growth is a fresh economic reality in the 21^st century. Having said that, there is a long and by no means exhaustive list of hope.

Proliferation of agri-industry, manufacturing, services, logistics, the military, communications, infrastructure including space exploration, defence and the exploitation of its spin-offs, architecture, manufacturing in multiple spheres. Then there is the development of river transport, river linkages, flood and drought management, fisheries including cultured fisheries, animal husbandry, diamond polishing, tourism, including religious tourism, solar, wind, hydro, nuclear and other forms of energy development. All this is growing apace in India. We have at least two decades of work before it begins to satiate demand. These activities collectively will generate a lot of employment even if single units do not employ thousands.

India is moving towards global leadership uniquely via its way of thinking now appreciated because it is backed with stellar economic growth too. India’s rootedness in spirituality, its alternate global view, is proving increasingly attractive to a troubled world.

This element, of being a Vishwa Guru too will set up a considerable opportunity, diplomatically, economically, and in terms of its considerable expertise in ancient knowledge, ayurveda, astrology, yoga, music, arts, crafts. India is quite the potpourri of ancient and modern.

Our emergence onto the global stage, largely by dint of our own efforts, and our geopolitical reality of being forced to be largely aamanirbhar in terms of our security, is another potent economic pointer to the future.

Our alliances such as QUAD, I2U2, the bilateral cooperation with a large number of countries, not always friends with each other, such as Russia, Iran, Saudi Arabia, the Central Asian Republics, Bangladesh, Myanmar, Sri Lanka, Oman, Maldives, Nigeria, Egypt, South Africa, Brazil, Argentina, Indonesia, Malaysia, Thailand, Vietnam, The Philippines, Guyana, also promise rich economic dividends going forward.

India is emerging as an alternative economy to engage with for food, engineering, technology, design, armaments at very competitive prices compared to the chronic high wage economies of the West.

India will, with its population growing to 1.70 billion by 2070 before it begins to decline, remain the most populous country in the world for nearly 50 years and more. This means it will retain its wage competitiveness for a long time, when contrasted with shrinking and ageing population bases in many parts of the world, including China, Europe and America.

India’s excellent relations with many countries in Africa, a continent with enormous resources and high growth trajectories, will see many mutual benefits from cooperation as the time goes on.

In a sense, the Covid pandemic, and the Russian-Ukraine War following it, has put a page break on the prevailing narrative. The US century, in place from after WWII, may be drawing to a close. China’s effort at world domination may not materialise. In a multi-lateral world that is emerging, India will certainly be an important player.

(2,089 words)

August 3^rd, 2022

For: Firstpost/News18.com

Gautam Mukherjee