Indian Economy

 Indian Economy

The Indian economy is heading in the right direction with $5 trillion GDP (nominal) achievable about a year late in 2026 instead of 2025. Even the IMF has revised their previous estimates to reach the magic number from 2027 to 2026. The COVID-19 pandemic caused one year of delay. Why this big achievement and that too without a massive influx of FDI and technology, it can be attributed to the dumping of Nehruvian secularism, socialism, and adopting the free market principle as its key measure. India has also mended much of its earlier corrupt practices by replacing corruption with entrepreneurship and ease of doing business. This 8.5% GDP growth forecast for the current year (2022-23) will occur despite the global slowdown caused by war, high oil prices and high inflation. It looks as though India will overcome this induced economic storm.

A gloomy picture painted in June by the Western and Indian economic analysts has been laid to rest by the timely arrival of rains in early July and forced them to revise their estimates. This time the Indian inflation acceleration has met its match as the rains and the improved planting season enhanced the economic outlook. 

The rupee's nearly 4% depreciation against the dollar this year has also made imported items costlier, prompting the federal government to restrict wheat and sugar exports and cut fuel taxes and has joined the RBI in the battle against inflation. The recent depreciation of the Indian rupee is not entirely under Indian control. As bank rates in the United States increase, capital outflows from India increase until the Indian rate rises in line with that of the United States. This action reduces the capital and liquidity available to the Indian economy and causes a slowdown. These inter-related issues are being evaluated on a daily basis by India and best course of action is chartered.

Although our exports have grown by 20%, that is definitely not enough to celebrate. When the United States began to make China an export country, it opened its doors to duty-free, unrestricted goods coming in. It pegged the Chinese currency so low that everything became cheaper to the importing country. China's leaders quietly welcomed FDI inflows, unrestricted imports and weak foreign exchange. As a result, it has achieved unprecedented levels of export and manufacturing prosperity. No such benefit has been made available to India. Our exports rose, but they stayed at $600 billion. These should be a trillion dollar by now, except enough money & know how has not been placed at India’s disposal. US and Europe policies are China centric in spite of major supply disruption due to pandemic in China. There was a huge hue and cry last year when a single source supply was challenged by the consumer advocates. Smart money always wishes at least a matching manufacturing to China elsewhere, probably in India to prevent future supply disruptions, but for now there are few takers of this policy change. As a result, India received no FDI at China's 1998 to 2014 levels. 

Back to the Indian economy…….. A growth rate of 8-9% will continue. That $5 trillion economy dream will happen in 2026. India will then be third in GDP after China and the United States.

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