Post-pandemic surprises and where the indian economy truly stands today 

Source: The post is based on an article “post-Pandemic surprises and where the Indian Economy truly stands today” published in the Business Standard on 29^th July 2022.

Syllabus: GS 3 Issues and Challenges Pertaining the growth and development of the Indian Economy

Relevance: Macroeconomic Performance

News: Recently, the International Monetary Fund (IMF) has released its quarterly update of its World Economic Outlook. The report talks about 30 highlighted countries, which has performed best during the pandemic, the subsequent recovery, and the period beyond — i.e., the period starting from 2020, stretching to this year (2022), as well as incorporating the outlook for 2023?

What are the findings of the report?

(1) Turkiye’s average annual growth in the period of 2020-23 has been put at 5%. It has emerged as an outstanding performer, in terms of economic growth, after the pandemic hit.

(2) China’s average growth in 2020-23 has been put at 4.55%,

(3) Egypt’s average growth in 2020-23 has been put at 4.3%.

(4) India comes fourth with 3.9%, followed by crisis-hit Pakistan, with 3.6%.

What are the IMF’s projections about the Chinese Economy?

China would be having a multi-decade low growth rate. The possible reasons are:

(1) At present, the country is facing the problem of shrinking working-age population.

(2) China is facing problems in the real estate and financial sectors, which may affect its overall macro-economic performance.

(2) China may find it difficult to continue with its export-led growth due to increasing diplomatic hostility from the Western world.

What does it say about the Indian Economy?

(A) History of India’s rapid growth

There are only two five-year periods when India recorded rapid growth. These are:

(1) Period from 2003-04 to 2007-08: At that time the global economy was facing a lot of issues, but India benefited from rapid export growth.

However, it was followed by sharp slowdowns, caused by a financial crisis of 2008.

(2) Period 2014-19: Indian benefitted from falling and low crude oil prices.

However, it was followed by sharp slowdowns, caused by the novel coronavirus pandemic. India’s growth has averaged 1.9% in the last three financial years.

(B) The IMF’s projections about the Indian Economy

India did poorly in the first pandemic year, here referred to the fiscal year 2020-21. Subsequently, India was one of the fastest recovering economies.

As per the IMF’s projections, India’s average growth would be at 6.8% for the next two years. Therefore, the Indian economy is set to be the fastest-growing economy among the select list of 30 countries. In fact, many multilateral and private forecasters projected India’s medium-term growth at 7-8%.

What are the challenges ahead in front of India?

Global Constraints: The global environment may encounter problems like possible stagflation in countries around the North Atlantic, military conflict, supply disruptions among other issues.

Domestic constraints: Following factors will make expansionary fiscal and monetary policy difficult for India.

(1) The fiscal deficits of the Centre and states together is double-digit in relation to GDP,

(2) There is a growing current account deficit, and

(3) There are high levels of public debt when interest rates are rising.