DNA Edit: A happy elephant – Indian economy is stable but not free of challenges

The International Monetary Fund’s forecast for India must be taken in the right spirit since it packs rosy predictions with a bunch of caveats. At this point, India has virtually everything going for it. It has overcome the hiccups of demonetisation and teething problems of GST. The economy is poised to grow at 7.3 per cent in this fiscal and 7.5 in the next on the back of robust investment and a spike in private consumption. 

Reforms have contributed to stability that was earlier missing primarily due to policy paralysis during the UPA regime and the previous government’s failure to give the economy a new direction. The macro-economic parameters, including growth, inflation and fiscal deficit, are healthy, as per Niti Aayog’s assessment. The IMF’s reading of the situation corroborates that. Another big feather in the cap is the Insolvency and Bankruptcy Code, which is touted as a game changer. India has made significant progress in terms of the four parameters of the World Bank’s insolvency resolution framework — time taken for resolution, insolvency cost, outcome and recovery. It is perhaps the final solution to the Himalayan burden of non-performing assets that public banks are saddled with. 

On the other hand, the far-reaching impact of government’s social welfare schemes will be felt on the economy as well. Agriculture will be a prime beneficiary since farmers will get MSP one-and-a-half times the cost of production. Moreover, in 2016, the government had amended the RBI Act to specify that the monetary policy framework should work to maintain price stability, while keeping in mind the objective of growth. This inflation-targeting framework has reaped dividends for the economy while keeping prices in check. Now comes the reality check. 

If India truly wants to compete with China, it needs to clock double-digit growth consistently for the next few years. This is crucial for India since it aspires to be an economic powerhouse rivalling Beijing’s clout in the world economy. New Delhi has a buffer of three decades to catch up with and surpass China because in these 30 years, it is in a position to make full use of its demographic dividends. After that India’s working age population declines. The IMF looks at a country’s growth trajectory from a long-term perspective. So India has to be financially robust while it is still young. 

The country needs to provide more jobs to its youth, which means the economy needs to focus on labour-intensive sectors. The Economic Survey 2016-17 had thrown up some interesting indicators, especially with regard to the kind of policy changes that will enable India to make the most of the rising labour cost in China and thwarting competition from Vietnam and Bangladesh. India also needs to up its game at a time when the global economy faces the prospect of a slowdown post 2020. This is the time when the US fiscal stimulus subsides and China’s gradual slowdown continues. It offers an ideal opportunity to India to step in when the big two economies are not in the pink of health.