Insight on Indian Economy

India’s growth is predicted to decline from 8.2 percent last year to 5.7 percent in 2022
and 4.3 percent in 2023, respectively. This prediction has been made by a recent report
of United Nations Conference on Trade and Development(UNCTD), citing higher
financing costs and weaker public expenditures as main reasons for decrease in India’s
economic growth. The report also noted that the ‘Production-Linked Incentive Scheme’
introduced by the government is incentivizing corporate investment, but on the other it
is creating more demand for energy and eventually resulting in rising import bills for
fossil resources. Higher import bills are causing a current account deficit.

The deficit is being covered by spending from the reserves. Therefore, the foreign
reserves of India continue to deplete. Recently, Reserve Bank of India (RBI) had drawn
about 118 billion from the reserves of 642 billion dollars in the previous year. The Indian
rupee had also witnessed an all-time low of 83.29 per dollar.

This year, the current account deficit touched the lowest in a decade. It is also
imperative to note that in the beginning of the year, the US Federal Reserve initiated a
‘tightening cycle in decades aiming at triggering outflows from emerging economies like
India.’ When US Federal Reserve increases its interest rates, the direct pressure comes
on the Indian economy, as investors move their assets from emerging or rather unstable
economies, like that of India. Therefore, according to Reuters the problem of current
account deficit has also coincided with decline in foreign direct investments.

Another reason cited by UNCTD of decreasing growth rate is the weakening of

government spending. It is confusing to note that despite economic growth in the
previous year, the government of India constrained to spend. Manasi Swamay, an
economist wrote in the Times of India that the Indian government’s reluctance to spend
is puzzling as its final consumption expenditure fell year-on year to 4.3 percent in the
second quarter of 2021. Now after publication of UNCTD report about declining growth
of GDP with weak public expenditure as the main reason, the government of India has
vowed to spend on rail and road sectors.
It is also ironic to note that despite growth of Indian economy, which was witnessed in
the last year there hasn’t been any trickledown effect. The plight of the masses remains
unchanged. India ranked 101 out of 116 countries on the hunger index in 2021. Poverty
is rampant in India.

It is interesting to note that projections are different from reality. According to a

working paper written for IMF by Surjit S Bhalla, Karan Bhasin and Arvind Virmani,
which also appeared in the Brookings, a US based renowned think tank, poverty in
India has declined. However, political analyst Ajit Ranade in an article that appeared in
the Times of India, questioned the validity of these findings by raising several valid
questions. He says that if there is enfeeblement in poverty then why the government has
announced free food schemes and free gas cylinder schemes and why over qualified
people apply in millions for few government jobs?

Growth in India has remained elusive. The poor are becoming poorer and the rich are
becoming rich. India is the second most populous country, yet only 5 percent of people
in India pay taxes. India has still failed to increase its tax base. It is also ironic to note
that in the list of ten wealthiest people of the world there are two Indians, Mr. Mukesh
Ambani and Mr. Gautam Adani.

There are several structural problems in India, Prime Minister Narendra Modi
boisterously attracted international investors without addressing the structural
problems. The international investors were initially attracted to the bandwagon of
‘projections’ but now the short falls have become visible. The Indian economy has an
unstable base. It is heavily dependent on the international financial dynamics. The
indigenous capacity of the Indian economy has not been explored, improved or even
utilized.

Corruption, confusing tariff laws, bureaucratic maneuverings and weak infrastructure

are the main hurdles for international investors to invest in India. These problems
refrain India from becoming an ‘opportunity’ for international investors, instead, it
turns into a maze of problems. Foreign investors are fleeing India. In October, 2021, 23
billion dollars were extracted from India.
In addition, small businesses have also stopped growing in India. According to State
Bank of India’s report, the informal sector’s contribution to the GDP in 2017-18 was
52% but it has now decreased to less than 20%. However, according to KE
Raghunathan, Convener of the Consortium of Indian Associations (CIA), there is a lack
of data and context around Micro Small Medium Enterprises.

The Indian government is playing all its cards in ambiguity. The lack of data creates
confusion and investors are trapped through projections alone. A lot of effort has been
poured to portray ‘incredible India’. The situation is bleak in reality. There hasn’t been
any census after 2011. It was to be held in 2021 but still it hasn’t been initiated as yet.

According to rough estimates the people living below the poverty line are as much as 60
percent of the population, but since there hasn’t been any census, therefore no one
actually knows the correct number. In a report produced for CNN, Moni Basu stated
that nearly sixty percent of the population of India lives on 3.10 dollar a day, which is
the World Bank’s median poverty line.

Without structural reforms aiming at bringing the people out of poverty snare, the
Indian economy will remain in the doldrums. The projections may attract investors, but
a thin structural foundation which does not have indigenous strength of sustainable
systems, will eventually wane off the foreign investments. The key of India’s progress
remains in elevating the poor by introducing structural reforms, without it, the outlook
of ‘booming Indian economy’ will be nothing more than a smoke screen.