INDIA AS A BRIGHT SPOT

 The recent World Economic Outlook released by I M F entitled 'Countering the cost - of - living crisis',listed  a number of turbulent challenges - inflation higher than seen in several decades, tightening financial conditions in most regions , Russia Ukraine war, lingering effects of covid  pandemic and resultant supply disruptions particularly in China,heat waves and droughts across Europe, Central and South Asia largely due to global climate change.Accordingly global economic growth has been severely impacted and it is forecasted to slow down from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023, which is the weakest growth recorded since 2001.In advanced economies in 2021 5.2% ,2022 2.4% , and 2023 1.1% growth is forecasted.In USA corresponding figures are 5.7,1.6 and 1.0 respectively whereas for Euro area it is 5.2,3.1  and 0.5, Germany 2.6,1.5,-0.3, France 6.8,2.5,0.7 Japan 1.7,1.7,1.6, United Kingdom 7.4,3.6,0.3.In Emerging market and developing economies projected growth is in 2021 6.6 ,2022 3.7, and 2023 3.7 whereas for emerging and developing Asia it is estimated to be higher 7.2,4.4, and 4.9 respectively.For China growth was 8.1% in 2021,declined to 3.2% in 2022 which is expected  marginally improve to 4.4% in 2023.However India achieved higher level of 8.7 % growth in 2021 followed by   projected 6.8% in 2022 and 6.1% in 2023, obviously higher than others,even after downgrading the earlier forecasts largely due to prevailing global headwinds. Taking the overall global economic trends International Monetary Fund warned "worst is yet to come " for world economy underlying that " 2023 will fell like a recession for many".Harsh global recession looms especially if central banks and policy makers mishandle the fight against inflation. As indicated the slow down predicted next year owing to the impact of Ukraine war,tightening monetary conditions the highest inflation in decades and lingering effects of Covid19. However India which has bucked the global trend has been performing "fairly well " which is expected to grow 6.8% in the current year following 8.7% growth in the previous year .Accordingly IMF MD Kristaina Georgieva has lauded India's economic growth and observed that India deserved to be called a"bright spot on otherwise dark horizon".

As per the forecast IMF  expects India to become the fastest growing major economy in the world again next year. But  India could not be decoupled from the rest of the world economy. Central banks including India have raised interest rates sharply to control inflation resulting in slowing of business investments and consumer spending. Higher interest rates are instrumental to have a cascade effect on recession in both advanced economies and debt crises in poor countries. Growth momentum as well as financial market and confidence indicators have deteriorated sharply the world over in recent months.A series of self inflicted wounds ranging from China's zero Covid19 policy to UK's fiscal recklessness which needs to be corrected by the new Government of Rishi Sunak happened. Global economy is also impacted by persistent supply chain disruptions and protracted war in  Ukraine.

Despite global headwinds like high energy prices, shrinking corporate profitability, tight monetary policy and aggressive rate hikes recession fears,inflation and external sector vulnerabilities  India has done relatively well in the region with  advantages like absence of large external debt, spectacular performance in both service sector and service exports and also prudent monetary policy.Recently Standards and Poor also observed that India may escape the brunt of global recession as it was never coupled fully with global economy. A lot however depends on how global fund flows behave in case there is a recession in the US and Europe. In the external sector the dollar index (value of US $ against a basket of 6 currencies- Euro, Swiss Frank, Japanese Yen, Canadian dollar, UK  pound and Swedish Krona) has zoomed from 96.21 on 3rd January to 113.08 on 20th October 2022.Estimates show that during this period Indian rupee depreciated 11.36%,yen 26.90% pound sterling 15.76%,Euro 12.09%Chinese Yuan 12.91% and Argentina peso 51.09% against US dollar. Interestingly Indian rupee has appreciated against sterling pound 7.08% ,Euro 3.42 %, and  Yen by 13.11%. There are few stable currencies like Indonesian rupiah, Singapore dollar and Hong Kong gdollar.It may be noted here that many experts believe that Indian rupee is overvalued against US $.IMF already instructed us to strictly follow market determined exchange rate and protect foreign exchange reserves.But Reserve Bank's approach of maintaining stability in exchange rate through prudent intervention in foreign exchange market has depleted our buffer foreign exchange reserves position especially in recent months from $640 billion to $ 525 billion as on 21stOctober.This suggest that foreign exchange support to exchange rate stability cannot be extended beyond certain period.Globally central banks are intervening to support their currencies and consequently reserves have declined by US $884 billion during the first half of 2022. In any case further fall of rupee may also lead to increase in import cost and inflation.More over despite Government targeted export of $460 billion in the current financial year however export in September slowed down to 19 month low of 4.8%.The current account deficit CAD was 2.8 % of GDP, merchandise trade deficit 8.1% of GDP while the net invisible surplus was 5.3% of GDP in Q1 of 2022-23.

High inflation is caused largely due to exogenous energy price shocks supply chain cost price pressures and tight labour market especially in advanced economies.While in US inflation reached higher level in 4 decades of 8.3%, in  Euro Area and U K recorded around 10%.In India the high inflation rate in quarter 2 of financial year 2022-23 preceded high inflation in the previous two quarters.Retail inflation remained elevated above 6% since January 2022 and it soared to7.41 % in September 2022.High fuel and food prices and their spillovers to other sectors have sustained high inflation rate.

As far as other indicators are concerned Advance estimate of production of Khariff food grains for the year 2022-23 is estimated at149.9 million tonnes.Purchase managers Index PMI manufacturing showed increase in September . Private final consumption expenditure (PFCE) the mainstay of aggregate demand recorded significant growth of 25.9% in quarter 1 of 2022-23.Passenger vehicle sales showed growth along with production of consumer durable gaining traction.Gross Fixed Capital Formation (GFCF) also recorded a growth of 20.1% and consequently the share of GFCF in GDP rose to 34.7% in Q1 of 2022-23 . However as per RBI study capacity utilisation in manufacturing sector declined from 75.3% in the previous quarter to 72.4% in Q1.However despite spectacular performance in export of services, merchandise goods exports declined while imports are spiking. 

To sum up the sustenance of brightness of India's white spot depends on both external and domestic factors. Externally first and foremost geopolitical tensions should subside along with easing of global inflation,energy prices and supply bottlenecks. Internally it may be much easier to increase service exports which are more labour intensive than manufacturing .In the prevailing global scenario policy support to sustain IT and digital revolution will pay rich dividends Similarly the logistics policy and PLI scheme though well designed needs to be evaluated case wise so as to minimize inefficiencies or malpractices. In any case fiscal support should generate employment,and export or both. Monetary policy should continue to provide both price stability and balance of payment stability along with economic growth.