Open Forum

New Delhi, 28 December 2022

2023 Economic Prospects

WEAK, GLOBAL SLUMP LIKELY

By Dhurjati Mukherjee 

Reports about the economic prospects for 2023, both on India and the world, appear quite stark. Former Reserve Bank of India Governor Raghuram Rajan stated recently that the next year will be difficult for the Indian economy as also for the rest of the world as the country failed to generate reforms needed for growth. He said policies should be formulated keeping in mind the lower middle class, which suffered the most due to the pandemic. Rajan also pitched for creating a conducive environment for small and medium-scale industries and giving a push to a green revolution in the field of sustainable energy. According to him, the next revolution in the country can be in the service sector.

Not just Rajan but various studies such as that of Institute of International Finance, a global association of the financial industry, expects the global economy in 2023 will be weak as it was in 2009 after the global financial crisis. The OECD underscored the “usually imbalanced and fragile outlook” for next year. And very recently, the IMF said that worsening indicators show further downgrades to global growth are likely, along with others, and sounded an alarm on the possibility of a global recession.

Another report of the Survey of Professional Forecasters, a report prepared by the central bank, expects a median real GDP growth of 6 percent next year after the 6.9 percent anticipated this year. Though many label India a bright spot in the light of its economic performance in these troubled times when most countries face grave challenges and risk either a recession or low growth, one cannot be too optimistic as the global economy has a great influence in our country.

The fiscal deficit is high at 6.4 percent but looks under control because tax reforms have created surging revenues and optimism for the future. Inflation is still high and is expected to be so in the coming months though lower than in Europe and the US. The only silver lining is the predicted high GDP growth as Morgan Stanley predicted that China’s GDP growth in the next decade will average just 3.6 percent while India’s will average around 6.5 percent.

As has been pointed out repeatedly, measuring the state of the economy on considerations of GDP growth is somewhat erroneous. Growth can become real development if the bottom tiers of the population are benefitted by the growth rate. The question of the latter’s purchasing power is very important in this context.

It is generally believed that a solid domestic demand and fundamentals make India sufficiently shockproof to external hits and macro-financial risks. This may be partly true, but it cannot be doubted that demand needs to be boosted up. Less than three months ago, on September 30, the RBI had decreased this further to 7 percent and once again, due to geopolitical tensions, tighter global financial conditions and slowing external demand. 

Though Finance Minister Nirmala Sitharaman stated recently that the forthcoming Budget will continue to push growth on the back of public spending, it is necessary to know in which areas this spending would be directed. Public spending should eye on the rural population, specially those belonging to the lower segments of society, so that their purchasing power is steadily increased through providing more resources towards welfare schemes.

The development of rural infrastructure – both physical and social infrastructure – is highly important for real development i.e., the development that percolates to the lowest levels whereby the bottom segments of the population benefit. It remains to be seen how much money would be allocated in the coming Budget for grass-root development schemes and what measures would be taken to ensure that the welfare benefits reach the actual beneficiaries to upgrade their standards of living

The hype created about high GDP has no meaning unless growth translates to real development that upgrades the standards of living of the impoverished sections. There are many economists who talk about an evolving an alternative strategy of development – not just that benefits the top industrial class but small traders and entrepreneurs who struggle to eke out a dignified existence. It is the latter section whose upliftment can benefit the transformation of the rural and semi-urban sectors.   

Three critical “access” barriers currently constrain the aspirations of those living in rural areas in India. Firstly, and most important is the poor physical connectivity (e.g. access to all-weather roads and electricity) followed by lack of digital connectivity and finally, limited financial inclusion (e.g. access to commercial banks and bank accounts). As India marches forward, it faces new challenges in health and sustainable living, even as it has achieved key health targets such as polio eradication. There is need for greater investment in rural health to upgrade the health centres in the blocs, specially in the backward districts, more so due to threats about Covid virus infecting the population of India.

Meanwhile, cities grappling with alarming rates of congestion and pollution, together with an unhealthy population, could significantly affect urban growth and lead to a fast deterioration in the quality of life of its citizens. Thus, there is also need for investments in the urban sector and improving infrastructure requirements, wherever absolutely needed. But more than that, what is most important is the maintenance of existing infrastructure, specially roads and highways, some of which are in a pitiable condition.

As the country enters a new era of envisioned growth with India taking over the presidency of G-20, many feel that 2023 is the time for all Indians to come together as one and address the most pressing societal challenges facing the country today. Keeping this in view, the priorities are obviously in areas like skilling and job creation, the socio-economic inclusion of rural India and the building of a healthy and sustainable future for every citizen, apart from huge investments in infrastructure development. 

For all these to become a reality, resource mobilisation has to be a priority. Corporate taxation must be increased but it was revealed in the Rajya Sabha very recently that business houses contributed 8 percentage points less to the gross tax revenues than it did in 2014. This corporate tax works out to just Rs 2.5 lakh crore. At such a juncture when huge investments are called for the government should make all possible efforts to raise this figure substantially to at least Rs 3 lakh crore

Finally, it has been agreed that there are too many variables that blur the country’s economic outlook and we will likely have some clarity over the next few months as we assess the energy crisis in Europe and the slowdown in China. The strength of all four economic drivers will be key for sustainable growth, and there are possibilities that not all may reach full steam.---INFA

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