Economic
Highlights
New Delhi, 27 December 2021
World Economy
INDIA KEY TO RECOVERY
By Shivaji Sarkar
Even as India’s macroeconomic situation
improves, it may not yet be the time to celebrate. The possible third wave is
being watched by the International Monetary Fund, World Bank and the Government
of India.
The World Bank sees rise in global extreme
poverty, and large number of people are subsisting on $1.90 a day, below the WB
standard of $2 a day. However, the IMF says India’s economy is poised for a
rebound after enduring a second wave of COVID-19 infections this year that
further constrained activity and took a heavy toll on its people. “What happens
in India has a big impact, both in the region and in the world,” Luis Breuer,
IMF’s Senior Resident Representative to India, says. “You're talking about a
large slice of humanity and the global economy.”
India’s broad range of fiscal, monetary and
health responses to the crisis supported its recovery and, along with economic
reforms, are helping to mitigate a longer-lasting adverse impact of the crisis,
according to the latest annual review by IMF. Though policy steps helped
mitigate the pandemic, it’s still likely to result in greater poverty and
inequality. And the path of recovery will follow the path of the virus.
New infections have fallen significantly and
vaccination rates have risen to surpass a billion doses, although another
resurgence is not impossible even if it seems unlikely today. “There's a lot of
uncertainty about COVID,” Breuer said. “We cannot rule out future waves”.
Despite large increases in India’s Central
budget the State budgets are presenting problems with contraction of revenues
and rising deficits. It contracted by 16 per cent in 2020-21 and has been
falling since 2018-19 by 13.1 per cent.
In the face of dwindling revenue receipts, the
Reserve Bank of India observes, States took recourse to expenditure
compression. As a result developmental expenditure on crop husbandry, water
supply and sanitation, social security and welfare housing and rural
development was squeezed. Simultaneously capital expenditure was cut in key
social and economic services including medical and public health, irrigation
and flood control, transport and rural development. This underscores the need
for raising additional resources.
Director, National Institute of Public
Finance and Policy (NIPFP) Pinaki Chakraborty, expressing concern says
inflation may remain at an elevated level as there was a significant fiscal and
monetary expansion in the last 18 months. It simply means money circulation has
increased and inflation may not be easy to check. So the country has to make
strides amid high prices and not so high income level. Once again the
government as it has done now may have to extend the dole to public on various
counts and income support.
Finance Minister Nirmala Sitharaman precisely
for this reason placed the second batch of supplementary demands for additional
spending of Rs 3.73 lakh crore. This involves higher than expected cash outgo
of Rs 2.99 lakh crore. The rest would be through cut in expenditures.
The items of additional expenditure include
Rs 62057 crore for past liabilities of Air India, Rs 58430 crore for fertilizer
subisidies, Rs 49,805 crore for department of public distribution and food. A
significant recovery of Rs 13901 crore
recovery was made from fugitives Vijaya Mallya, Nirav Modi and Mehul Choksi.
Despite this Chakrabory
points out that in the fiscal year 2020-21, the deficit of all levels of
government is estimated to be 14 per cent of GDP and the same is estimated to
be around 10 per cent of GDP in 2021-22. Fiscal deficit may exceed Rs 15.1 lakh
crore, according to ICRA despite the proposed cut in many expenses termed as
savings.
The high borrowings may have
an impact on finances and would require high-paced growth to check the
difficult effects on finances and economic conditions in the years ahead. It
means the sailing for the common man may not be easy with possible impact on
consolidation of the economy due to higher debt servicing cost and further
increase in the process of running the government.
The greatest problem is in
increasing consumption demand. It accounts for 50 per cent of the total GDP. In
the second quarter private final consumption expenditure registered a growth of
8.64 per cent year on year compared to 11 per cent contraction a year back. It
indicates an enhanced economic performance. This is followed by increase
government financial consumption expenditure growth of 8.7 per cent against
contraction of 23.9 per cent in 2020-21. Agriculture shows a growth of 4.49 per
cent and manufacturing 5.5 per cent.
Everything, however, is not
in shape. The World Bank finds that debt loads in emerging market and
developing economies have spiked during the pandemic. The challenge is acute,
says Global Economic Prospects and comes after a decade that saw the fastest,
biggest and broadest expansion of debt levels around the world.
A concern is that developing
economies will need to be careful as they would have to withdraw post-pandemic
fiscal support and look to increase the efficiency of public spending. The WB
says that debt burden will be felt long after the virus abates, as servicing
costs rise, slowing recoveries and hindering efforts to address other
development challenges. The concerns are equally good for India.
In reality, it says that
there is more debt than what meets the eye because “it is not a very
straightforward exercise”. Global debt surveillance today depends, says the WB on a
patchwork of databases with different standards and definitions. They contain
large gaps: the report shows that publicly available tallies of debt stocks in
low-income countries can vary by as much as 30 per cent of a country’s GDP
because of divergent definitions and standards in local and international
databases.
India’s most projects are having high debt
and their problems. Meanwhile, the continuing farmer agitations in various ways
in Ghaziabad, Noida and elsewhere in northern India, have become more assertive
in their demands, most over local issues such as compensation and land
rights, may have their impact.
Omicron is being watched carefully. It has
its impact on the stock market and if there is another lockdown, the cost could
be higher. India remains important to world economy, as IMF representative Luis
Breuer says. So a positive growth for India would decide the future. The New
Year has hopes, concern and the key to unravel it.---INFA
(Copyright, India
News & Feature Alliance)
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