As the Reserve Bank of India takes stock of the economy amid an uncertain global scenario, it would be pertinent to look at where our economy stands. Recently, Germany reported a second consecutive quarter of contraction in its economy in the three months ended March 31. While the decline was mild, it is now in a recession, defined as two quarters in a row of output declines. Much of Germany’s problems stem from a rise in energy prices prompted by Russia’s retaliatory moves to restrict natural gas supplies in response to sanctions imposed on it for invading Ukraine. Surprisingly, the Russian economy appears to be surviving well, which raises questions about the effectiveness of the West’s sanctions. Furthermore, with the euro zone’s largest economy now shrinking, others in the common market union will be affected as well. This could be reflected in Europe’s business in the coming quarters. Adding to the troubles is inflation, which despite being lower than its peak, is well above the tolerance level. This will tie the hands of policy makers in acting enthusiastically to promote growth. In the UK, inflation is above 8%. Across the Atlantic in the US, the story is not much different, with inflation, at 4.9% in April, more than double the 2% rate targeted by the Federal Reserve.
The debt-ceiling being dropped down the road has also brought relief. But it is the actions of the Federal Reserve on which the prospect of a recession may now hinge. It has reiterated its tough stance against inflation, though investors are betting that this is a lull, and that its rate hike cycle is over. Should the Fed wonder, however, the US and thus the world could be at risk of a deep recession. China’s economy, the world’s second largest, is also faltering, with output expected to expand by an unusually weak 3% in 2022. In this broadly gloomy canvas, India stands out, as described by the International Monetary Fund as a “bright spot”. The 7.2% gross domestic product (GDP) expansion in 2022-23 indicates that it is holding up better than the rest. While the low contribution of India’s exports to its GDP, and to global exports, makes it less vulnerable to any external shocks, New Delhi’s efforts to increase exports—with some welcome success—have recently Deepened business ties. Therefore, we cannot hope to remain untouched. Furthermore, our financial markets are deeply interlinked to serve as a channel for any external volatility. hit our shores.
Nevertheless, there are opportunities that India is eyeing. With much of the industrialized world busy avoiding recession, our economy could become a haven of peace, especially as the world tries to de-risk itself, even trying to disengage entirely from China. Is. Since this causes major investment shifts, India’s continued expansion could serve as a big draw. But we shouldn’t treat ourselves as the natural choice just because we’re counted among the big leagues of global economies. Smaller Asian economies such as Vietnam, Indonesia and even Bangladesh are trying equally eagerly to woo investors into this China+1 trade – and with remarkable success. Therefore, we have to make aggressive efforts to bring our economy back on track. New Delhi has taken significant steps by reducing barriers to trade and is also heavily dependent on the Production Linked Incentive (PLI) scheme. It has helped, no doubt about it. But our efforts need to go much further to capitalize on an extraordinary opportunity of this scale. We clearly need more engagement with stakeholders.
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Updated: 08 June 2023, 12:21 AM IST