Macrovariable projections in uncertain times

Macrovariable projections in uncertain times


The concerns for Indian economy

  • The increasing interest rate given by US Federal Reserve, which is causing outflow of Capital in the form of Foreign Portfolio Investment (FPI).
  • This has caused the Reserve Bank of India to raise interest rates which has had the double impact of curbing outflow of capital and restricting Inflation rate.
  •  However, despite these measures Indian economy much like the global economy faces an uncertain future.

The major causes of this uncertainty is

  1. The Ukraine-Russia conflict which has resulted in economic sanctions imposed on trade with Russia. In this scenario, India’s decision to but crude from Russia can be seen as a blatant disregard to the Rule Based World Order that US champions.
  2. The other major Concern would be the lockdowns imposed in China due to the new outbreaks of Covid happening in the country. While most countries have gotten used to the sporadic and persistent outbreaks of Covid over time, China’s zero-Covid policy has again put the struggling global supply chains under strain.

Another source of uncertainty has emerged in the recent times in the form of Monkeypox disease outbreaks in various states in the country.

How Russia-Ukraine war will impact world at large

  • While the war is actually fought between Ukraine and Russia, it is easy to realise that the war is a proxy war between two powerful nations with enough military and economic might to keep fighting.
  • While Russia has attacked Ukraine, the western powers are supplying arms to prolong the war and weaken Russia. Also, sanctions against Russia are being used to weaken it economically.
  • The impact of the war can already be felt globally with rising inflation rates in US and Europe as well as the increasing food scarcity in Sub Saharan Africa. Even the economic struggles of developing nations like Sri Lanka and Pakistan can take a turn to the worst when you consider that both the nations are waiting for a bailout package from IMF. However, with the global order in taters, it is doubtful about the size of IMF aid, if any.
  • The war can also be seen as the opening salvo of a renewal of Cold war with US and its allies on one side while Russia and China on the other. While the countries may not have much ideological differences anymore, with China showing no interest in trying to re-establish a Communist International (Comintern), they have differences in economic and geo-political interests.
  • This will cause major policy dilemma to India since India needs US to counter China, at the same time Russia has been an all-weather ally to India since the days of Soviet Union. India also depends heavily on Russian made arms and ammunitions.


What are the internal issues plaguing Indian economy

  •  India lacks accurate availability of its macro-economic parameters since the data for unorganised sector, other than agriculture, is not readily available and unorganised sector employs 94% of the workforce.
  • Another issue is the presence of black economy which skews the data available.
  • There is also a lack of target specific data which classifies purchasing power of Poor and Rich which will give a much accurate image of the entire economy.