Opinion

Global Hyper Debt: India Rides Growth Bug

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.

 

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Shivaji Sarkar

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