As we enter the new fiscal, the economic situation in the country is projected to be far from satisfactory. While inflation is not under control, specially food prices on which people from the lower echelons of society depend for their survival, unseasonal rains and the forecast of scanty rainfalland heatwaves in several parts of the country has added to the misery. The global economic situation has also adversely impacted the Indian economic scenario.
The weather agencies of the US government have for the third month running reiterated the possibility of El Nino conditions developing in late summer this year. The March update of US agencies linked to the National Oceanic & Atmospheric Administration (NOAA) on conditions in the Pacific Ocean, released recently (March 11) reiterated the model projections of the previous two months on the possibility of an El Nino forming around July-August this year. That the signal for El Nino persisted in weather models for three months strengthened the forecast although experts, including IMD officials, said a clear picture would emerge only next month when spring conditions in the Pacific are taken into account.
While the possible appearance of an El Nino this year does not bode well for monsoon rains in the country, which have implications for the kharif crop output, there are several other factors that determine the quantum of rainfall during the June-September season such as conditions in the Indian Ocean, the Eurasian snow cover, intra-seasonal variations etc.
Meanwhile, as per a report of Climate Trends, the prevailing weather conditions are a result of increased global warming. Continuous rise in the global mean temperature has been impacting the dynamics of weather phenomenon such as Western Disturbances and ENSO (El Nino Southern Oscillation). Western disturbances are normally found to travel towards the eastern part of the country. Simultaneously, if there is a system in the north Bay of Bengal, both systems interact with each other, bringing a good amount of rain over east and the north-east. But meteorologists point out that there are not enough western disturbances over north Bay of Bengal to cause sufficient rain.
“With global warming, western disturbances are getting lighter due to more convection and heat coming in the intensifying Arctic heatwave pulled up the weather systems, making them travel in higher latitudes and not having any effect on India’s weather”, according to Skymet Weather. It needs to be mentioned here that climate change has become more than a reality as cold regions are not that cold while summer months are extended with northern, central, western and even the eastern parts witnessing intensive heat. The climate this year is projected to be unusually warm, and rainfall may be much less, at least below the last five year’s average.
While the economy grapples with high food (cereals and protein) inflation, potentially adverse climatic conditions are posing a threat to India’s agricultural output. Heat stresses are building up again as last year, putting pressure on rabi crops such as wheat, oilseeds and pulses, Emkay Global Financial Services pointed out.
The other disturbing trend is that government expenditure has picked up a little, but the absolute sum does not match the pre-pandemic quarter (October-December 2019), indicating that the impetus from public capex wasn’t very forceful. The hope is that the continuation of the rebound in services, segments of which have pronounced informality and flexible response, will generate additional demand spill overs by creating employment. But here also the possibility of a good monsoon to stimulate rural demand is not projected.
Counter signals come from the moderating growth of GST collections, bank credit, two-wheeler sales, amongst a few examples. The probable attribute of economic revival to expect are unevenness and non-linearities because the impact of the pandemic upon households and business was asymmetrical.
The global environment, which the Indian economy is closely wired into, cannot be taken lightly. The resurgence of inflation after a long time in advanced countries as also in India is well known. However, the fallout of a 500-basis point rise in the US interest rates in a year in a background of sustained extraordinary monetary easing by major central banks and setting of high debt levels across countries has no historical examples for the present. The capacity of domestic demand to power growth by itself is doubtful.
Despite improvements in agriculture, mining, services and construction, consumer demand in the country remains below expectations. The chain of private investment regenerating on the back of cleaned balance sheets of corporates and banks, structural reforms and more supportive policies is challenged by the fall in manufacturing growth.
Thus, the scenario does not augur well even though politicians boast of G-20 presidency which has come to India in a routine manner. What matters is the increase in income levels of say the bottom 40 percent of the population or the workforce. It needs to be reiterated that defence or aerospace expenditure or the wealth of the top richest persons or the increase in the number of billionaires hardly matters as the struggling masses have to be brought into the mainstream of life and activity.
It may be necessary at this juncture to take certain steps which include improving the supply chain to control inflation. India needs sector-specific targeted efforts to manage supply, and therefore, inflation. For instance, a large part of inflation is due to food prices and the government must make efforts toward building infrastructure to optimise the food and agribusiness supply chain. Developing market linkages by identifying and connecting farmers with buyers and facilitating contract negotiations between the two could be critical.
Secondly, there is need to incentivise the services sector for job creation. The government’s focus has rightly been on sectors such as infrastructure, construction, and manufacturing that create jobs for workers across all skills. As the services sector has huge potential, be it in retail, trade, or information technology, schemes such as Product Liked Incentive (PLI) would go a long way in promoting manufacturing and sunrise sectors. An effort towards building global in-house centres of the world and adopting agility in doing business could revive the services sector and create employment opportunities.
Thirdly, there is need to find new sources of revenue. The government will have to support growth by boosting spending to cushion the impact of global exigencies as well as the global economic slowdown. As the challenge would be to raise resources for the expenses it incurs, it would be advisable if the super-rich is imposed a cess for a year or two on infrastructure. Though tax revenues have been quite strong, the government will have to monetize assets so that it can front-load its expenses in 2023-24. It will have to focus on states with a large monetization base, identify potential assets that can be monetized, and also bring in strategic partnerships with private players to allow private capital to flow into select sectors.
Finally, India must be prepared to bounce back when the global economy recovers though this is easier said than accomplished. The government needs to focus on completing ongoing infrastructure projects and boosting sectors with strong linkages and multiplier effects. While progress in several infrastructure projects has been somewhat good, highway networks are yet to gain momentum and progress in power and energy has been modest. Furthermore, focusing on supporting the micro, small, and medium enterprises sectors could help India achieve inclusive growth.
As has been repeatedly emphasised repeatedly, the GDP growth rate cannot be an index of the prosperity of the lower segments of society. Thus, what has to be at presently is a general increase in demand, the rise in per capita incomes of both the organised and the unorganised sectors and exploring possibilities of employment generation that should be help in reviving demand and take the economy forward.–INFA