Changing Scenario of the Indian Economy
Present situation:
- Optimism and pessimism tend to fluctuate when it comes to the health of the Indian economy right now.
- For instance, according to a recent analysis by Morgan Stanley, based on data from the CMIE regarding the dire job situation in the nation and the long-term threat it poses, India has all the prerequisites for an economic boom.
- Political sentimentality has a significant influence on economic arguments. There are serious problems in understanding what is going on.
The Indian economy has developed, become more alluring, and become more competitive:
- Our historical knowledge and experience dealing with a range of economic shocks allowed us to build and comprehend a future economic strategy that will strengthen the Indian economy’s ability to withstand shocks.
- Junctions are commonly left behind by growth. What may initially appear to be a structural growth barrier may really be made up for by circumstances changing.
- Despite progress, India’s logistics still fall short of international standards. Unexpectedly, Morgan Stanley asserts that a legal basis for enforcing a property restriction does not exist (perhaps it never was).
- India might possess cutting-edge digital infrastructure. Optimism seems to be required in this case.
- However, the Morgan Stanley report adds two further assertions.
- Two things will happen as a result of the development of the digital infrastructure: first, services will be outsourced to India; and second, more people will have access to financing, which would encourage economic growth. Although none of these claims is certain, they are both plausible.
The reform of the energy industry is India’s second argument:
- The price of oil has always had an impact on India’s economic development.
- Those who are optimistic claim that a significant conversion to green energy will increase investments, increase India’s competitiveness, and increase its energy independence.
- In this situation, “plausible yet hard” applies.
The resurgence of manufacturing optimism is the third component:
- The production incentive programmes might work occasionally. We might eventually reach a tipping point when tiny adjustments in defence production and investments, like those made by Apple, start to have significant rippling consequences.
- The optimists rule out this possibility too fast, to zero. Despite the fact that this option is currently more likely than not, it is still unclear whether it will actually happen.
Human capital makes up the final component:
- India still has a ways to go. Since assessments of the quality of human capital are frequently made after the fact, we instead extrapolate the traits of human capital from wealthy economies.
- One could argue that this ban is useless because India now possesses sufficient human capital.
- Domestic demand is the sixth component. This, according to the optimists, has always been the argument’s weak link.
- There has always been a tendency to overestimate the need for housing. This scenario has gotten worse due to the income gap.
- The NREGA and PDS have helped the disadvantaged population’s ability to absorb shock. Most post-Covid consumption figures indicate rising demand, which is largely being supported by the wealthy. However, consumption cannot be sustained on the backs of just the top 10% of earners.
- According to Morgan Stanley, during the next eight years, the proportion of households earning between Rs 10,000 and 30,000 will increase from 24% to 46%.
- It has been debunked that India’s growth is exceptionally capital-demanding. The result may be an even less fair income distribution. The expansion of agriculture was a factor in the recent surge in consumption.
- Could that happen again with the weather being as unpredictable as it is? It might be crucial to consider how this allocation would change if there is an increase in public employment. The distribution of India’s consumption statistics, however, appears at best questionable as of right now.
- MSMEs and the unorganised sector, both of which have suffered greatly recently, are included in the sixth component.
- Historically, it has been believed that small enterprises are sufficiently entangled in supply chains to benefit from top-down expansion.
Politico-geographic context is the ninth component:
- Diversifying India’s economy away from China is thought to be favourable. It looks that the optimism’s assertion that this is the scenario with the lowest chance is true.
- It is unknown how much of China’s outsourcing will go to India rather than Vietnam or Indonesia. The potential for overstating the importance of offshore is another consideration.
- Because FDI is still increasing in China, a significant shift may not be apparent until a war breaks out. Geopolitical speculating is not a growth tactic.
- The seventh factor, the state, is disregarded by Morgan Stanley. The state’s capacity has increased in a variety of ways throughout the last 20 years. Both India’s foreign policy and its macroeconomic framework serve as examples of deliberate conservatism. The state’s income projections remain upbeat. It may be argued that the quality of federal spending has also increased.
However, the following difficulties continue to exist:
- Priorities are set for state budgets. Public investment has played a significant role in sustaining India’s recent growth. There may be stricter restrictions on public investment because of the requirement for subsidies, the rise in public employment, and the current reversal of the previous pension scheme.
- The regulatory environment at the moment is also unreliable. Swadeshi may not have much of an effect on the e-commerce sector, but our knowledge of trade in general is limited.
- Thirdly, the typical issues that arise when complicated governance issues like pollution and urbanisation are disregarded and undermine the nation’s image still exist.
- Additionally, there are political and economic risks involved with giving a small number of national champions authority over the economy in such a varied range of businesses. The Indian government does, however, have enough legitimacy to draw in investment.
