India set to play its part in global recovery

At the close of the financial year that ended on March 31, India’s nominal gross domestic product at current prices was estimated at Rs.232.15 trillion (US$3.12 trillion). Also, India was reported to have the world’s third largest base of privately held start-up companies with a value of more than US$1 billion. Together they are valued at $332.7 billion.

Although there is still no sign of the economy regaining the momentum of the time of the Manmohan Singh government, the Narendra Modi regime, which enters its 10th year this month can have the satisfaction that the economy is moving forward again.

The Reserve Bank of India has projected an economic growth of 6.4 per cent in the current financial year. This is in line with the estimate the government made in the Economic Survey placed in Parliament before this year’s budget. It estimated last fiscal year’s GDP growth at 7 per cent. All these estimates are, of course, still subject to revision.

Rajiv Kumar, former Vice-Chairman of Niti Aayog, which oversees developmental activities, while talking to a news agency, gave credit to the reforms undertaken by Prime Minister Narendra Modi for the improved economic outlook. However, he took care to warn that as the country moved forward, major risks could emerge from a synchronised downturn in the North American and European economies.

Another issue which merits scrutiny in this context is whether what is taking place is the right kind of development. To take advantage of the population dividend, India needs to provide fruitful employment to the large number of young people entering the labour force each year. But what the country is witnessing is jobless growth.

The Centre for Monitoring Indian Economy (CMIE) says India needs to create 20 million new jobs each year to meet the current demand for employment. What’s more, employment must grow at 5 per cent per annum. However, currently, only less than 2 million jobs are added in a year.

Jobless growth did not begin after the change of government. It had started manifesting itself in the time of Manmohan Singh but became more pronounced under the new dispensation.

In the 1970s, while the economy was growing at 3 to 3.5 per cent a year, India recorded a job growth of 3 per cent a year. Later, as the economy grew at over 5 to 8 per cent a year, job growth was only about 1% a year.

Employment elasticity, defined as percentage growth in employment for one per cent growth in GDP, fell from close to unity in the 70s to 0.4 in the 90s. It is today less than 0.1.

India has about 400 million employed people. This number includes an estimated 100 million people who are engaged in agriculture though they are actually not needed there.

Experts believe joblessness may assume disastrous proportions if India is not able to find a way to create 20 million jobs a year, as proposed by CMIE. As of now, there are no firm plans to tackle this issue.

Nevertheless, in the short run, India appears to be in a position to fulfil the global financial institutions’ expectations about playing its part in economic recovery.

India and China will account for half of the expected global economic growth of less than 3 per cent this year, International Monetary Fund Managing Director Kristalina Georgieva asserted recently. About 90 per cent of the advanced economies are projected to see a decline in their growth rates, she said.

She warned that the sharp slowdown in the world economy last year, following the pandemic and Russia’s invasion of Ukraine, would continue this year.

The period of slower economic activity would be prolonged, with the next five years witnessing less than 3 per cent growth, “our lowest medium-term growth forecast since 1990, and well below the average of 3.8 per cent from the past two decades,” she said.

“Some momentum comes from emerging economies, especially of Asia,” she added.

However, countries other than India and China could face a steeper climb, she observed.

She noted that the shock of the Russian invasion of Ukraine came after a strong recovery in 2021. It had wide-ranging consequences. Global growth in 2022 dropped by almost half, from 6.1 to 3.4 per cent.

The IMF chief’s remarks, came ahead of the spring meetings of the IMF and the World Bank. Clearly, policy-makers everywhere have much to think about.