Economic
Highlights
New Delhi, 29 November 2021
Global Hyper Debt
INDIA RIDES GROWTH
BUG
By Shivaji Sarkar
India joins the world aiming for a super
growth on a high debt and infra push for an economic panacea. India’s heavy
investment over Rs 233.08 lakh crore investment in infrastructure, of which the
Rs 10500 crore Jewar airport in adjacent Delhi in Uttar Pradesh, is officially
expected to give a major boost to the economy.
India is not alone as the entire world is
trying to do give that needed push. The result is hyper growth in world debt to
$226 trillion. In its 2021 Fiscal Monitor report, the
International Monetary Fund (IMF) said India’s debt increased from 68.9 per
cent of its GDP in 2016 to 89.6 per cent in 2020. It is projected to jump to
90.6 per cent in 2021 and then decline to 88.8 per cent in 2022, to gradually
reach 85.2 per cent in 2026. After that, it’s projected to stabilise at about
97 per cent of GDP. In a year, India’s external debt alone increased by $11.6
billion.
Jewar International airport has accelerated a
process of development in UP with an eye on the ensuing Assembly elections. It
may make this part of the National Capital Region one of the most crowded
places, inviting large number of migrants that may stress the local resources.
Still hopes have been raised and it is certain that cash flow in the region
would increase for now.
The withdrawal of the three farm bills have
raised aspirations but also rivets eyes to the continuing farm unrest, which
the officials say is no more warranted. But severe crash in the stock market has
added to a new nagging concern.
The nation hopes to fly on
expectations. Similar airport projects, high altitude Himalayan development,
large tree felling and acquisition of farm lands across have ecological
concerns. But a nation striving hard to come out of the corona pandemic is
certainly looking for a fast development course so that there is cash flow.
The government expanded the ‘National
Infrastructure Pipeline (NIP)’ to 7,400 projects. According to Department of Industry and Internal
Trade, 217 projects worth Rs. 1.10 lakh crore (US $15.09 billion) were
completed as of 2020. Through the NIP, the government invested US$ 1.4 trillion
in infrastructure development as of July 2021.
A major aspect of this development is
infrastructure. It looks good but it is also true that more the investment is
made in infrastructure, the nation’s cost to delivery increases and in the long
run unless there is an overall growth in activities -- from industry to
agriculture -- the benefits become expensive to afford.
The IMF says that constraints
on financing are particularly severe for poorer countries. Noting that in 2020,
the fiscal policy proved its worth, IMF Director for fiscal affairs Vitor
Gasper, says the increase in public debt then was fully justified by the need
to respond to COVID-19 and its economic, social, and financial consequences.
But the increase is expected to be one-off, he added. So how to scale down the
debt needs to be of concern.
These debt dynamics are driven by
a strong contribution from nominal GDP growth, accompanied by a much more
gradual reduction in the primary deficit, said Gasper. This is a matter of long
term concern. It is indicative of a difficult situation continuing for some
time. Besides, in its report, the IMF said risks to the fiscal outlook are
elevated. This calls for India to review its policies. Let us not forget 2007-08
global meltdown that followed an unsustainable financial behaviour.
The results would be high
inflationary tendencies that would add to the costs further and create an
unstable global economy leading to more conflicts and further costs. India’s
inflation has risen to 12.5 per cent. It is adding to a number of costs, as
prices rise wages too rise and a cycle of inflation may well continue. It is
also being seen in a regime of high taxations and high penalties on cars and
car uses across the country.
The silliest is the clampdown on
outside state registered vehicles in Bihar, and HSRP plates. These are ignored
as small issues but these small things are making lives of people difficult.
User charges are being recklessly increased. At some private railways stations,
parking charges are going through the roof. Ostensibly, nobody can be blamed as
‘the prices are rising’ but that needs a holistic review.
The IMF projects growth at 9.5 per cent in
FY2021-22 and 8.5 per cent in FY2022-23. Headline inflation sees elevated price
pressures. The contraction in economic activity, lower revenue, and
pandemic-related support measures are estimated to have led to a widening of
the fiscal deficit to 8.6 and 12.8 per cent of GDP in FY2020-21 for the Central
and State governments, respectively.
It notes that fiscal policy continues
to support the economy. But the IMF is concerned that despite policy support,
bank credit growth has remained subdued, while large corporates have benefited
from easier conditions in capital markets. Net inflows and improvement in the
current account have supported an increase in foreign exchange reserves. The
current account balance is projected to remain in deficit as oil prices rise.
The overall toned down IMF report
indicates not an easy situation in the coming years. The concern of the Narendra
Modi government is high. It wants to take the economy to a new level through
high cost push projects in the hope that there is relief and the government
could take credit for solving a difficult situation. It would do well to review
the situation once again though it may not be easy in a country where people look
for fast solutions.
Steering the country to stability
is not easy. It is true that international organisations are cautious while
performing governments feel their efforts are being tried to be stymied. India
hopes that Modi’s efforts belie IMF projections and infra push takes the
country to the targeted growth. ---INFA
(Copyright,
India News & Feature Alliance)
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