While most emerging nations have struggled mightily against the strong US dollar and falling commodity prices, Bharat is above water.
Bharateeya economy is growing faster than China’s this year, and the most of any major economy in the world. It will surpass Russia’s this year in size and nearly equal Brazil’s in 2016, according to new data from the International Monetary Fund (IMF). Bharat is holding its ground during a shaky time in the global economy too. While most emerging nations have struggled mightily against the strong US dollar and falling commodity prices, Bharat is above water. Its currency, the rupee, has gained in value against the dollar this year. The currencies of peers Brazil, Turkey and South Africa have all lost value. Moody’s raised Bharat’s credit rating outlook—a sign of a healthy economy.
Bharat’s Economic Surge
Bharat imports lots of oil and falling prices are a big win for both businesses and consumers there. A relatively new government led by Prime Minister Narendra Modi, has also ushered in a wave of reforms to bolster businesses and jobs and helped reduce Bharat’s foreign debt. Less debt and more concrete reforms—plus the country’s young worker population—are building investors’ confidence in Bharat.
Bharateeya economy is likely to clock 8.1 per cent growth in the current financial year, spurred by strong consumer spending amid low inflation, infrastructure projects and government’s reform measures, says a United Nations report. Investment is also expected to rebound, although unevenly, given the still low capacity-utilisation rate at about 70 per cent, it said.
“Growth is forecast to accelerate to 8.1 per cent in 2015 and 8.2 per cent in 2016, benefiting from the acceleration of infrastructure projects, strong consumer spending due to lower inflation and monetary easing and gradual improvements in market sentiments,” said the UNESCAP report titled, ‘Economic and Social Survey of Asia and the Pacific 2015. It said however that volatile capital flows that may follow monetary policy normalisation in the US remain the downside risk. The growth projection is in line with the estimates of the Finance Ministry. The IMF and the World Bank have projected Bharat’s growth at 7.5 per cent for the current fiscal. However, the Reserve Bank of India (RBI) has forecast a growth rate of 7.8 per cent.
The report said, decline in inflation benefits from lower global energy prices, but structural factors that keep food prices remain high. These include post-harvest food waste that is up to 40 per cent, lack of market competition, higher agricultural input prices and wages and an increase in minimum support prices. More than half of Bharat’s farming is rain-fed, so food prices are subject to weather conditions, it added. Talking about structural reforms, the report said these are gaining momentum since the new administration took office in May 2014.
These include opening up of 120 million new bank accounts to promote access to finance and easing FDI restrictions in such sectors as defence equipment, railways and construction. That apart, it said: “The ‘Make in India’ initiative was launched in September 2014 to promote Bharat as a global manufacturing hub. The success of this scheme would require broad-based policy actions in enhancing human capital, access to inputs and finance, and better connectivity.”
In this regard, the report said, the government introduced online services for environmental and forest-related clearances and launched an online system to replace cumbersome labour-related forms. On impediments to growth, it said, one of the key remaining challenges is to address labour market rigidities and generate enough jobs for 8 million new job-market entrants per year. The UNESCAP report said, as half of Bharateeya workers still work in agriculture, the country needs to raise its productivity by engaging more in higher value added production.
This would help the country realise its potential for growth, which is supported by a high savings rate and emerging middle-class population, and further cut poverty, which remained high at 22 per cent of the total population in 2012, it said. The report further said that weakness in infrastructure is one of the key factors holding back the Bharat’s economic growth potential. Significant investment in infrastructure is required, not least to meet the increasing demand due to growing incomes and population together with the requirements of rapid urbanisation, it added.
Dr Ashish Barua (The writer is an Economist and former Director of IIRM)