The Indian Economy In 2022 And What Can We Look Forward To In 2023

As the year 2022 draws to a close, the most notable achievement for the Indian economy was that it overtook that of the United Kingdom in GDP terms. And this, in the very first quarter of FY 2022-2023. This made it the 5^th largest economy in the world, on its way towards $ 4 trillion in GDP before long.

The feeling of continuum is a key feature of the Indian economy in 2022 and going forward. The days of abrupt changes in policy that were seen to be disruptive have ended with the departure of coalition governments, as of 2014, and are unlikely to return, even post the general elections of 2024. This is crucial for India’s economic outlook. Without continuity, all bets are off.

By 2028, India is expected, by a number of international lending and rating agencies, to reach the No.3 slot, having overtaken both Germany and Japan. It will then be behind only the US at No.1 and China at No.2. This is on nominal GDP terms, though India is very well placed already, at No.3 in purchase power parity (PPP) terms.

This PPP also helps India’s vast population of 1.40 billion and climbing, because the low per capita income of Rs. 1.5 lakhs in 2022, still buys quite a lot in comparison. Two earning members from a family at the bottom of the pyramid can still pull in Rs. 3 lakhs per annum.

A ‘developed’ country like Britain, in contrast, with per capita in the region of $ 46,510.30 in 2021, has its common people in difficulty to meet basic food and energy costs at present.

One of the reasons for 2022 doing so well for us, is India’s excellent and quick bounce back from the Covid pandemic.  Its handling of the Covid pandemic by inoculating over a billion people, mostly free-of-cost, and at a fast pace, with at least one highly effective home-grown vaccine, was nothing less than spectacular.

The other was the Astra Zeneca licensed vaccine, which has also performed very well. Both have demonstrated an efficacy of over 75%. No other country can claim such dramatic success with consequent low loss of life, even though most developed countries have vast budgets and very small populations. India has also shipped Covid vaccines free of cost to a number of countries that requested them along with other medicines.

This clear staking out of India’s position as ‘pharmacy to the world’ over the period 2020 to end 2021, gave it immense global stature, particularly amongst the ‘Global South’. This benign and beneficial stature, will not be forgotten as it goes into 2023 as the Chair of the G-20 Summit. Nearly 30 countries will participate including some 10 invitees. How 2024 turns out will have a lot to do with agreements arrived at with the G 20 participants.

However, India did not make much money from medicines, nor does         it intend to profiteer in future, because its largely generic drugs are not high-priced, even as they pose a long-term commercial threat to the Western pharmacological industry. Consequently, there is a fair amount of malicious misinformation against Indian efficacy and quality.  

The Indian economy is presently growing at between 6% and 7% per annum according to various independent estimates. It is adding $ 400 billion per annum to its tally according to Morgan Stanley.

The World Bank has revised its estimates upwards in October 2022, and expects India to grow at 6.9% in 2022-2023 and at 6.4% in 2023-2024.  It is also expected to maintain this momentum year-on-year for at least a decade going forward. 

By way of contrast, in 1990, just before a sharp balance of payments crisis and the urgent, sweeping reforms in 1991, the entire Indian economy was at less than $400 billion.

This sluggishness over four plus decades, was due to an over reliance on socialist policies and a highly regulated economy that failed to deliver.  Now, both the size of the Indian economy and the momentum of its growth have picked up considerably. India is acknowledged as the fastest growing economy globally.

 Exports, which were never India’s strong suit in the past, came to the rescue during the pandemic, when various other sectors of the economy were depressed or even inactive. They are expected to touch $ 1 trillion by 2030, according to the Commerce Minister Piyush Goyal.

In the nearly one year of the ongoing Ukraine war, India has exported rice, grain and other food items, as it is food surplus. Another feature that is now descriptive of the Indian economy, that was dependent on food aid in the 1950s and 1960s when the population was less than a third of what it is now.

The vast domestic market however is India’s mainstay, with consumption and investment accounting for 70% of the economy. This makes it an attractive destination for foreign investors as well.

India, on its part has been pumping up its capital expenditure in infrastructure, capacity building, connectivity, and modernisation at an unprecedented pace. This, in turn, is having a entirely positive knock-on effect on the economy by removing chronic bottlenecks and inefficiencies at a dynamic pace.

At a time when multiple Western countries are keen to reduce their dependence on a Chinese supply chain, India stepping up to the plate with the requisite infrastructure and the offering of incentives to relocate/manufacture here is very timely. Giants such as Apple Industries have already taken advantage of the opportunity. Several high-end semiconductor manufacturers from Taiwan and elsewhere are in the process of starting factories in India.

Electronics and automobiles including componentry are already growing fast and are big employers. Other unicorns and start-ups, valued at over 332 billion,  making India the unicorn/start-up capital of the world, offer exciting employment possibilities.  Development of Artificial Intelligence (AI) applications alone holds out the prospect of millions of new jobs.

India’s macro-economics are solid beyond just the growth statistics. Its current account deficit is well financed by foreign direct investment and dollar reserves that are hovering close to $ 600 billion, even after dipping to try and shore up the falling rupee against a surging US dollar.

India is working hard to enter into rupee trades with Bangladesh and Sri Lanka after establishing a rupee-ruble format for trade with Russia. This will, as it grows, reduce India’s dependence on the American dollar.

This even as clean energy initiatives, meaning non-fossil fuel, will cut 40% of India’s ever growing and costly petroleum import bill. With a current 80% dependency on imported fuel, this is the hardest inflationary item to manage and roils the strength of the rupee vis a vis the dollar.

 The purchase of most of India’s oil and gas needs from Russia and others at discounted rates over the last year has however contained domestic inflation to reasonable levels. India has also been exporting refined petroleum products at an elevated pace during the logistic difficulties posed by the war in Ukraine.  Prices have been aggravated by international sanctions, sharp cuts in production by OPEC and other oil and gas producing countries. This has kept oil prices high at a time when Europe and America are struggling with higher rates of inflation of between 6% and 11% never seen by these economies in the decades since WWII.  

India’s thrust towards aatmanirbhar manufacturing have borne fruit in 2022 with several beginnings in the defence manufacturing industry. With 68% of items proscribed from the imports list, Indian industry, both public and private sector are reaping the benefits. In addition, because of the quality of armaments made in India, a new defence export market is growing. Brahmos missiles were exported to the Philippines in 2022. Other countries, such as Vietnam, UAE and Egypt have lined up for these and other Made in India missiles. Armenia has bought Indian rocket launchers and radars. The Tejas fighter aircraft are not only filling shortfalls in the Indian Air Force, but are also being looked at with interest by other countries. Indian drone manufacture is growing fast. So are the manufacture of automatic machine guns, cold    weather gear, bullet-proof vests, boots, ammunition, rifles, armoured cars, transport aircraft in a joint venture between Airbus and Tata, light tanks, heavy tanks, howitzers, rocket-launchers that are mobile, and superior to the Russian ones they are replacing, with a longer range. There are frigates, submarines both nuclear and conventional, aircraft carriers. The Indian Defence Industry has not only been growing significantly in 2022, but has the potential to become a percentage player in the global arms markets at a fraction of the price of its Western competitors.

Certain things, like fighter engines, and naval gas turbine engines, are yet to be developed, but vigorous joint venture talks are on with France, the US and Britain. This, even as we scale up Indian R&D on an urgent basis to take care of the threats posed by a two-front war with both China and Pakistan. Making our own aircraft and naval engines will go a long way towards essential security.

ISRO has made great strides, not only by launching heavy rockets and multiple satellites into orbit itself but by also hosting private players to do likewise. But there was a            time, decades ago, when it was denied cryogenic engine technology by the West and Russia, and had to develop it on its own. Now, like NASA, it is also working on a reusable space vehicle for multiple visits to space.

A sector that now rivals agriculture both in share of the GDP and the numbers it employs is the real estate sector. This activity has been and will continue to be a magnet for surplus rural labour. After a number of years with oversupply, it  picked up in 2022 and is expected to continue surging in 2023. The demand for housing and commercial properties is almost insatiable in a country like India. People see it as security only next to gold and refuse to let naysayers and economists dissuade them from buying either.

And yes, India’s contribution from agriculture to the GDP is now at 20.19%. It is services that account for 53.89%, and manufacturing is slowly growing to claim 25.92%. Will the share of the service sector shrink going forward, as manufacturing, exports, real estate etc grow? It is likely, but it will only be a slightly smaller percentage of a bigger pie.

In future, the leading factor that will distinguish the Indian economy is the degree of its digitisation that is already advanced when compared with the West. 5 G and 6 G, both developed domestically, will play their part to deliver goods and services and blow-out the financial economy.

The number of Indian companies that will attain scale of being billion and multi-billion-dollar companies will be significant in 2023 and beyond. You cannot compete internationally without this scale. This even as the  Micro, Small and Medium Enterprises (MSME) sector, often touted by Communists as the neglected Hoi Polloi, will rapidly convert itself to supply this giant series of corporations. There will be greater integration, better quality, less overlapping wastage.

In a sense, India is simultaneously moving on all fronts. This, of course, is essential to a well-rounded economy. That the Indian economy is not over burdened with debt, particularly external debt, puts it in a good position to realise its ambitions in 2023 and beyond. This is what pleases the World Bank and the International Monetary Fund (IMF) the most, because they can count on less volatility, something they can’t say too often in today’s troubled world.

 

 (1,922 words)

December 29^th, 2022

For: News18.com

Gautam Mukherjee

 

Size Of Economy & Military Matters

A Last Chance to Malign And Disrupt India’s Progress, Because By 2028 It will Be Too Late

When an economy is No.5 in the world, having surpassed its former colonial masters, the United Kingdom, and despite its 1.40 billion population; it is time to recalibrate perceptions of its place in the world.

Multilateral agencies like the World Bank, the IMF, already have. So have a number of leading international rating agencies.

India has begun chairing the G-20 along with nine invited guests including Egypt that is mulling an extensive defence manufacturing cooperation with India, including its Tejas fighters, its helicopters, howitzers, armoured vehicles, light tanks, drones, missiles.

But, in due course, perhaps a decade from now, when India becomes a percentage player in defence exports, it will challenge the vastly more expensive military industrial complexes of the West. A prospect they do not welcome. Unlike copycat Chinese armaments that nobody wants, India’s military demands and gets a quality product that can consequently be exported. A long list of countries want to follow the Philippines to import the Brahmos missiles already.

China chose December 9^th 2022 to attack, yet again, with clubs and stones, in a carefully planned operation at Tawang, Arunachal Pradesh. Perhaps it is time for India to authorise the use of artillery and other weapons at these intrusions.

The Chinese came with as many as 300 troops, but were promptly repulsed by just 50 to 70 Indian soldiers with over two dozen Chinese injured in intense hand-to-hand fighting. India suffered six soldiers injured. The timing suggests that Xi Jinping was trying to embarrass Narendra Modi just before India takes over the G 20 from January 1^st 2023.

But sovereign Western nations being overtaken economically, all members of the G7 and NATO, also find the rise of India hard to digest.

Even Japan, otherwise warm and cooperative towards India, a QUAD member, has decided to develop a new generation of fighter plane, for the first time since WWII, along with Britain and Italy, as it diversifies away from the US, its erstwhile sole defence partner.

An article by Somnath Mukherjee, Managing Partner at ASK Wealth Advisors, suggests that Warren Buffet’s investment dictum of ‘Never bet against America’ is beginning to apply to India too.

He writes ‘The biggest variable in India’s favour is in our numbers-a population of 1.4 billion works the probabilities in its favour. Even if 10% of the population approach Korea-level productivity, that is a market the size of Russia at Korean levels of income. This small cohort itself would generate an income pool of nearly $ 5 trillion’.

To illustrate this point in a razmataz manner, today’s news says India’s well-heeled will purchase 450 super cars this fiscal, up from 300 last year, each at over a couple of crores in price.

In Dubai five-star hotels, only super-cars like Maserati, Ferrari, Bentley and their ilk get to park in the portico and front parking lot nowadays. Apparently, staff valet-park BMWs, Mercedes Benzes and Audis in the back lot, as they are now regarded as taxi worthy, if not taxis. In Dubai, with its tiny population, this sort of thing, excessive as it is, still makes a point, but in India it could be the beginning of a tsunami.   

Nevertheless, in 2022, India is still an emerging economy, albeit with the fastest growth rate of a major economy in the world at between 6-7 per cent per annum. It is headed to become the No.3 economy behind the United States and China by 2028. It will then be a $10 trillion plus economy, up from nearly $ 4 trillion in GDP presently.

Morgan Stanley says India is adding $ 400 billion to its GDP annually now, a figure bigger than its entire economy till even 1990, when it was at $ 320 .98 billion.

China, at No.2 presently, at $18.32 trillion in 2022, is still growing at 3.2 %, and some reports say it may overtake the American economy by 2028.

Not, of course, if America can help it, but the intertwining of the economies has been built over more than 30 years, and disengagement where in many case both the raw materials and the manufacturing is Chinese, is not easy.

China has long been suggesting that it shares hegemony over the world with the US - the Atlantic for America, the Asia-Pacific and Indian Ocean for China. Of course, this is errant nonsense, and unacceptable to the present world order. But China is still pushing this envelope in the absence of an outright domination of America.

India is about to attain these dizzy economic and strategic heights soon, provided it can keep building its military deterrence and using it to good effect when challenged. But getting there will buffet the power structure of the dominant West no matter how diplomatic India may choose to be. Still, size and heft has its compensations.

India is quietly building its second indigenous aircraft carrier, other nuclear powered submarines, stealth frigates, fighters and other aircraft, armoured cars, light tanks, missiles in a great variety, and is proceeding as quickly as it can on a wide range of military aatmanirbharta.

Why is it that China, despite being a repressive, autocratic, imperialistic, near dictatorship under President Xi Jinping, does not receive much criticism from the Western media?

Democratic India, on the other hand, receives daily brickbats from the West. Is it because the West realises that if India’s progress is to be slowed, now is probably the last window of opportunity to make it happen. It is not easy though, because even today, India is a nuclear weapons power with a large market and considerable technological prowess, and a new determination to not be pushed around by China.

There are a multiplicity of weapons manufacturing countries willing to collaborate with India if the terms are right. But India is making more and more of its military equipment indigenously and more often than not, shops only for componentry, engines, radars and the like.

India, it has become something of a cliché, is seen as a possible bulwark against Chinese hegemony in the Asia Pacific, the Indian Ocean and farther afield. The leading Western powers are officially keen on cultivating India. But, another, more hawkish school of thought from the West is not averse to seeing China knock some spots off India to make it more amenable to negotiations that favour the West, as always.

The West is uncomfortable dealing with a sovereign independent-minded India with a freshly declared intent to pursue policies and alliances that best suit its national interest.

So, at a low-cost minimum, the West and even radical regimes like Qatar in West Asia, uses its media. It encourages pressure groups such as diverse often ISI backed resident Pakistani organisations, Khalistanis abroad in Britain and Canada, Kashmiri radicals likewise, who want to see J&K severed from India. Then there are China supported academics, celebrities, Leftists, Communists, Islamists, terrorist organisations, drug cartels, parts of the OIC, who are given free play to constantly snipe at India.

This affords plausible deniability to Western governments, and the detractors of India are positioned as people exercising democratic rights to dissent, criticise and influence. Ideas that India says it professes.

So Prime Minister Narendra Modi’s government is portrayed as fascist and communal, its freedoms of expression curtailed, its minorities targeted, practicing a narrow chauvinistic Hindu nationalism that is out to destroy its erstwhile pluralism and so on.

Rounds of little-known NGOs issue reports from European countries putting India near the bottom of the pile on many such parameters with great regularity.

That none of this bears any resemblance to the truth, and actual circumstances on the ground do not bother this spreading of calumny. Fortunately, India has grown thick-skinned and Western approval from its fringe operators that trash journalistic and professional ethics every day, is not very high on its list of priorities.

One has to actually pity groups like the Khalistanis and their supporters. They gave it their best shot backed by Pakistan in the 1980s, and were squarely routed. Today, it makes no real sense, as neither they, nor any of their backers stand a chance of actually creating a Khalistan out of Punjab. So why does the West pamper such no hoper third-rate terrorists, drug-dealers, smugglers, and murderers?

What good, this hypocritical policy does in a time when India is not likely to be deterred by any amount of Western propaganda, is anybody’s guess. Perhaps it is designed to put off those who would invest in India, but if so, these would be only the ones who do not do their research properly.

The Apples and semi-conductor manufacturers, the aircraft joint ventures, are not the least bit put off.

The counter narrative sees Narendra Modi as a visionary world leader and India as a terrific business destination. But of course, there is much controversy and tumult even as the rag-tag opposition tries to latch on and get a grip and traction.

China, on the other hand, is handled with kid gloves because of massive supply chain dependencies and billions of dollars in bilateral trade. This despite efforts to get away from it post the Covid pandemic that originated in Wuhan.

It is not as if the atrocities against Uigurs in Xingiang do not receive censure and bad press internationally. But it all seems quite muted and largely  cosmetic in comparison to the magnitude and audacity of the systematic repression of an ethnic minority. Similarly, China’s treatment of Tibetans, and indeed its own Han Chinese in Hong Kong is seen more or less as an internal matter. Even its acute sabre-rattling against Taiwan is largely glossed over. Likewise its attempts to project sovereignty over all of the South China Sea, ignoring other countries in the littoral, and even international laws on the freedom of the seas, is not accepted by the West, but it tries not to provoke the dragon beyond aggressively patrolling the important waterway.

While India’s problems with China along the long LaC as well as via the Pakistani proxies are acknowledged by the West, the defence of the border is regarded as a largely Indian matter.

Similarly, when China menaces the Senkaku Islands in the East China Sea, the region said to be rich with unexploited oil deposits, it is mainly up to Japan to defend its sovereignty over the islands.

America has retreated from playing universal globocop, and having to foot the bill as a consequence. But this too has encouraged China’s ambitions.

In a sense the West, particularly America, was the architect of China’s meteoric rise to prominence. So much so, that China now wants the No. 1 spot in naked terms. This is the stuff of pride before the fall because a vastly superior American military will simply not allow it.

It has happened over and over in history, and caused both the world wars of the 20^th century, but China under Xi Jinping, seems impervious to the warnings of such history. Instead, the strategy is to keep chipping away at the Western room to manoeuvre. And yet, the West treats China like a foregone conclusion, like a bad habit perhaps, and objects, out of pique, jealousy, nascent racism, against a resurgent India.

It is more than likely that both China and the West will fail in their interwoven machinations, and India will prosper regardless, passing between the chinks in their armour. One major reason is the vibrancy of its domestic economy dependent on none, and its ability to feed itself. The other is that it will remain the most populous but young country in the world for the rest of the 21^st century.

(1,930 words)

December 13^th, 2022

For: Firstpost/News18.com

Gautam Mukherjee