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New Delhi, 10 January 2024

Economic Concerns 2024

FOOD PRICES, POOR PVT INVESTMENT

By Dhurjati Mukherjee 

The economy is always a matter of debate and the new year has started with concerns expressed by members of Reserve Bank of India’s monetary policy committee about volatile food prices. The vegetable price inflation has been manifesting since November and this is expected to continue in the months ahead. As Michael Patra, RBI Deputy Governor rightly pointed out that food prices in India “are the underlying component of inflation” and this is expected to continue in 2024. Moreover, climate will remain a key influence on food production and inflation as El Nino conditions are expected to continue.  

Another important factor is that debt has been increasing fast and the International Monetary Fund stated that it may reach “100% of debt to GDP ratio” by the year 2028. However, the Finance Ministry clarified that the roll-over risk is low for domestic debt and the exposure to volatility in exchanged rates tend to be on the lower side. Reports indicate that the government will have to either trim expenditure or target higher revenue for the current fiscal as the nominal GDP is estimated to grow slower. Moreover, the fiscal deficit may reach 6% of GDP. Also, high interest rates, fiscal consolidation and slowing global growth are not quite favourable.     

Recently, Trinamool Congress leader, Derek O’Brien, stated that “from 2014 to 2023, the price of rice has gone by 56%, wheat by 59%, milk by 61% and tur dal by 120%”.  According to him, 21 lakh workers from West Bengal have not received wages for the last two year under the MGNREGA. Around 150 farmers are committing suicide every day and India has 28 crore poor people, ‘the highest for any country’. 

In spite of all this, optimistically speaking the overall economic signs are quite encouraging with the year-to-year data rise in the stock market estimated at over 18% while the increase from October may be around 14-15% and the growth momentum maintained. Forecasts have been quite positive with the IMF prediction that India is expected to grow above 6% over the next five years, driven by strong investment, strong economic fundamentals, digitalisation-driven productivity gains despite widespread global uncertainty. The IMF, in its article IV consultation report observed a robust public capex agenda, which will support India’s wide-ranging infrastructure needs, is expected to boost growth while crowding-in private investment and growth is projected at 6.3% in both FY24 and FY 25. 

“Noting that India is one of the fastest growing economies globally, the directors called for continued appropriate policies to sustain economic stability and for further progress in key structural reforms to unleash India’s significant potential”, as per the report. Further it pointed out that India’s economy showed robust growth over the past year though headline inflation has, on average, moderated although it remains volatile. But what is surprising is that whether high GDP growth can be considered the index of true development though urban-based economists are always found to glorify the high rates of growth? 

An important point that needs to be mentioned here is the lack of private investment and the economic strength is manifest only from public sector investment. It is intriguing that in spite of various incentives given by the present government, private investment has not picked up to the desired scales and is much lower compared to the other emerging economies of the world.  

This apart, assessing economic growth is just not the incomes generated but the job potential of the investment made. In this connection, one may refer to the central bank’s December round of consumer confidence which reveals that consumers lowered their expectations of employment and prices as they expected a change in the scenario. It is difficult to foresee or forecast any perceptible change unless there is a surge in investment by the private sector in 2024. There is also need to give a renewed thrust on manufacturing though a number of initiatives have been undertaken by the present government. 

It cannot be denied that while attempts to strengthen the economy are in full swing, there is a need to analyse whether the benefits are reaching all segments of society. The moot question at this juncture is whether convictions along with the positive settings will encourage businesses to take risk and come out with substantial investments. It is well-known that the long-term weakness in India has largely been due to the shyness of the private sector, specially in manufacturing, though we see enough investments in safe sectors such as health and education. Even after the pandemic, investment by the private sector has not picked up to the desired extent. Moreover, employment-oriented industries are more or less ignored by the corporate sector. 

To attract private investment, one may suggest that areas in backward regions should be earmarked for private entities with `necessary infrastructure to facilitate setting up of employment-oriented factories, which could not just open up job opportunities for the skilled youth but also help change the complexion of the area. This is indeed crucial for overall economic growth because unless the youth are gainfully employed, the concept of true development is lost. 

The disturbing fact is that the focus of the economy is on the urban sector which, directly or indirectly, is benefiting the rich and the middle class. This resulted in consumption increase but most economists believe consumption demand has indeed been problematic with the top 40% of households going for excessive expenditure. This points to the fact that the lower 20% of the population is facing financial crisis due to stagnant income and is not in a position to increase even its basic consumption, that is, of healthy food for themselves and their family. This can be viewed from the fact that agriculture grew at a mere 1.2% in the second quarter and full fiscal growth is likely to remain subdued as kharif food production is estimated to fall and rabi crop faces stress. 

In fact, an economic analysis of per capita allocation of resources would reveal that the rural sector, specially the backward regions, inhabited by scheduled tribes and lower castes has been grossly neglected. As suggested earlier, some of these areas could be transformed into industrial hubs for small-scale manufacturing or even tourist attraction centres. There needs to be a plan which should be prepared at the panchayat level and sent to the Centre via the state government for infrastructural support. Both objectives of backward area development and employment generation could be achieved through these initiatives. A fresh look is required. ---INFA 

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