Editorial of the Day: India’s Growth Amid a Global Economic Slowdown (Indian Express)

Context of the Article: Global Slowdown is on the way, but India has done relatively well despite multiple shocks in the past three years.

• The reasons include its “double diversity” advantage, arriving at a feasible set of reforms, and the success of counter-cyclical policy in smoothing shocks.

Advantages of a Large and Diverse Country Highlighted by the Author

• Lesser inter-dependency of sectors: In the global slowdown some sectors continue to do well despite others slowing.
  • In the current scenario manufacturing exports slow down, and services exports and remittances are robust, reducing the current account deficit. The trend growth in digitization is powering the growth of tier 2 and 3 cities.
• Global diversification: India’s Global diversification is away from over-dependence on any one country.
  • The China+1 and Europe+1 factor will continue to create opportunities for India.

Author’s Criticism of India’s Growth

• The fundamental issues with the Indian Economy: Growth cannot sustain without major reforms. This view points to the slowdown of the last decade and a growth crash post-pandemic.
  •  India’s growth recovery, however, is one of the highest among major economies. Since it exceeds that of countries with a worse slump, it is not just because of the base effect.
• Faulty GDP measurement: Official figures are very much in line with high frequency and other economic indicators.
  • Revised figures were expected to show the destruction of small firms. But evidence coming in is pointing differently.
• India cannot grow without a push from global growth: It is true India’s highest growth was in the 2000s when there was a global growth boom.
  • Better policies, including openness to new technology, trade, and more efficient forms of organization, help the economy grow rapidly after crossing a certain threshold and double per capita incomes in 10 years.

How Policies Succeeded during the Pandemic?

• Relaxing tight monetary and financial conditions: This move showed signs of recovery in high-frequency data before Covid-19 hit in March 2020. These policies aided in good recoveries between Covid-19 waves.
• Counter-cyclical monetary policy:  This policy helped restrain deficit expansion. Inflation-reducing action in the food and energy sectors allowed monetary policy to support the growth recovery while limiting inflation, anchoring inflation expectations, and reducing risk in the economy.
• Lower volatility of interest and exchange rates: It helped keep real interest rates smoothly below growth rates.
• Facilitation: As industry and government worked together, the focus shifted from disciplining to facilitating industry growth.
• Right industrial policy: The industrial policy sought to encourage export competition, sunrise high-tech, and green industries, capture opportunities in supply-chain diversification and create jobs.
  • Rationalizing laws, regulations, and taxes; easing compliance; improving infrastructure, and lowering logistics costs, all helped in production.

Conclusion

• India can continue to do well, if it learns from the pandemic period in smoothing shocks and continues to undertake feasible low-resistance reforms that further its advantages.
• This middle path may help the economy find its way back to faster growth — 7 percent can double real income in 10 years; 9 percent can double per capita income.

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