Why state of Indian economy is what you make of it
Be it GDP growth, inflation, employment generation or the Atmanirbhar Bharat Abhiyan 3.0 policy response, it is possible to draw very different conclusions depending on how one views the economy
- The Indian economy is going through one of those curious phases when it is possible to argue diametrically opposite things about it.
Price rise or the inflation rate
- Retail inflation — calculated by using the Consumer Price Index — surged to a 77-month high of 7.61 per cent in October.
- The rate at which retail prices increased in October is the highest since May 2014.
- High inflation, especially double-digit food inflation, was one of the main reasons why people were unhappy with the United Progressive Alliance government towards the end of 2013.
- The retail inflation rate has been above the Reserve Bank of India’s (RBI) comfort zone from past 11 months. For the record, RBI targets a retail inflation rate of 4% and can allow it to vary between 2% and 6%.
- The chart below shows how the cumulative increase in food price inflation in 2020 has been the highest-ever since 2014.
- The “core” inflation (that is, inflation rate without taking into account the prices of food and fuel, which tend to fluctuate the most) has steadily hardened since November 2019. The persistence of high core inflation is perhaps the most worrying trend.
- The RBI stated, India has entered a “technical” recession in September. A country is said to have entered a technical recession if its GDP growth rate stays in the negative territory for two consecutive quarters.
- India’s annual GDP growth fell sharply between 2017-18 (7%) and 2019-20 (4.2%). A CARE Ratings study of over 1700 companies to evaluate the incremental employment, found that this deceleration had a sharp impact on the number of incremental (or new) employment.
- Barring Banks and FMCG (fast-moving consumer goods such as packaged food and toiletries), all other sectors employed fewer new people in FY20 as against FY19.
- The government announced the third tranche of the Atmanirbhar Bharat Abhiyan package.
- A key initiative is the Production Linked Initiative worth up to Rs 1.46 lakh crore for 10 key sectors in a bid to boost India’s manufacturing capabilities and enhance exports.
Now, it can be argued that the PLI will help the Indian economy but it can also be argued that this scheme is spread over the next 5 years and it is unlikely to result in any new expenditure by the government in the current year.