Are we Underestimating the Indian Economy?
The World Bank says 90% of countries will be facing the worst of recession, this year! Forecasters expect a contraction of Global GDP, with negative growth rates.
However, the Indian government on the other hand, being optimistic about it’s situation said that it is rebooting and revamping the economy with an ambitious goal to position itself as a global centre of the supply chain. This is partly due to the growing tensions between large economies like the United States and People’s Republic of China, providing an ample opportunity for India to tune the dynamics of the geo-economical, political and strategic shift, in its favour.
India is trying to develop its self-reliance (आत्मनिर्भर भारत अभियान) strategy and build a stronger economy, at the face of a pandemic and this move does make sense given the state of our economy, at pre-covid times.
Our economy was bottoming out in the fourth quarter of 2019-20
Globalisation & Localisation, at the same time
Currently, Foreign Direct Investment (FDI) needs to be promoted, making India an alternative for low cost manufacturing with robust infrastructure and a cradle for skilled labour. Recently, Apple’s biggest contract manufacturers globally, Foxconn and Wistron, had applied for the Production Linked Incentive (PLI) scheme by the Government of India. And shifted its manufacturing to Chennai from China.
This is not a single gesture, but also a moment of reckoning for major corporates around the world that this shift is possible. Over the past, India has been an attractive market, given its sheer size and the spending capacity of the middle-class families with double incomes.
The impressive growth of Indian startups like JIO, has proved its resilience
India, is also confident at its research-capabilities and capacity of mass-producing a COVID-19 vaccine with Serum Institute of India, being one of the world's largest vaccine manufacturers by volume. This will display its prowess in supply chain management and distribution of vaccines around the world, post all trials are complete.
Though consumer spending has declined for the first time in decades, putting economists at disconcerting levels of stress about the state of our economy. We know for a fact that there is a huge pent-up demand for goods and services beyond the essentials.
Locally, businesses and consumers have adapted to the current situation with a boost in digital transformation. These expansions will stay relevant in a post-covid world, bringing an expanse to their consumer-end demand cycles.
For Example, local kirana stores have moved into online model with WhatsApp order-booking due to the social distancing norms and restrictions to movement. This has helped them retain and grow their customer base, while bringing about a behavioural change in the process.
Don’t Underestimate the Common Man
A middle-class employee, working from home, unable to spend their decent salary package (considering pay cuts and moratorium on loans) over the last few months will find himself scraping into his savings again with an uncommon urge for spending, as the situation gets back to normalcy.
A daily wage labourer, who has seen the worst of his times with the migrant crisis, will find an underlying need to put an effort in the right direction. Backed by the Government's economic revival package, which aims at decongesting the cities and going pro-rural. These energies in tandem with the improving situation with lockdowns at state and regional areas will further demand a correction in our calculations, while forecasting the economic revival.
Also, the contraction in the production of goods and services was resulted not from an inherent weakness in the economy, but sponsored by a restriction of movement due to the pandemic and its relative effect on the supply chains. This demand-side shock is only temporary and cannot be characterised as a recession triggered by a financial crisis.
A significant breakthrough in the research for a covid-vaccine, will see a synchronous recovery of the world economies to a state of profound balance.
The Economic Curve of Growth
This interim period facilitated by the coronavirus pandemic can also be utilised by India to fix its economic policies and crisis in the banking sector.
A starting point for many such changes can be a review of the GDP computations, given the criticism by economists and bureaucrats over the official statistics ever since the Ministry of Statistics and Programme Implementation (MoSPI) came up with a new methodology to calculate the GDP on the base year of 2011-12. The key indicators of economic activity (IEA) used to track the Indian Economy doesn't even resonate with these numbers.
The banking sector is one of the major and outstanding problems to be addressed. It is also causing an economic slowdown due to its risk aversion, NPA’s and decline in corporate lending. We have been living with our own mistakes of the past, from the Nationalisation of Banks in 1969 to Demonetisation in 2016 and recapitalisation of public sector banks with the taxpayers money. If the government is willing to take the necessary measures to revive the economy, bank mergers will not be the only solution to this problem.
Prime Minister Narendra Modi's vision of making India a $5 trillion economy and a global economic powerhouse by 2024-25 is not distant, if the priorities are set right!