Growth Pangs- Relevance for UPSC Exam
- GS Paper 3: Indian Economy– Issues relating to planning, mobilization of resources, growth, development and employment.
Economic Challenges of South Asian Economies- World Bank Report
- The World Bank pared its 2022 growth projections for South Asian economies to 6.6% on Wednesday, from an estimate of 7.6% released in January.
Key Factors affecting Asian Economies
- COVID-19 Pandemic: The World Bank Report emphasized that post-pandemic growth was uneven and fragile, affecting the weak Asian economies like Sri Lanka and Pakistan.
- Russia Ukraine War: Daunting impact of the COVID-19 Pandemic on World Economies, especial Asian economies was further intensified by the ongoing Russia-Ukraine conflict.
- High Food and Fuel Prices: The ripple effect of high oil and food prices that prevailed even before the Russia Ukraine war, were further exacerbated due to the war, found the world bank report.
World Bank Report on India
- The World Bank said that India’s GDP may now grow by 8% in 2022-23, not 8.7% as it had earlier forecasted, before dropping further to 7.1% in 2023-24.
- The Bank’s chief economist has said that their overall assessment is that GDP growth could actually be 1.3 percentage points lower, or 7.4%.
- However, the World Bank refrained from making an adjustment of that magnitude in their headline projection due to some positive surprises in recent data such as strong digital services exports.
Other projections about Indian Economic Growth
- The Asian Development Bank expects India’s GDP for the year to rise 7.5% with retail inflation of around 5.8%.
- RBI reset growth hopes from 7.8% in February to 7.2%, while raising its inflation projection for the year more sharply from 4.5% to 5.7%.
Challenges faced by Indian Economies
- The tepid post-COVID recovery in India’s household consumption will be further hemmed in by high inflation and the incomplete labour market revival.
- India’s growth was already experiencing a relative slowdown in the January to March 2022 quarter, compared to previous quarters.
- India’s recovery varies widely across sectors and manufacturing remains troubled due to weak demand and increasing input costs. This is borne out by the latest industrial output data.
- Economists expect inflation to trend much higher, even above 7% in the first half of the year, and well over the comfort threshold of 6% over the full year.
- Countering Inflation: Monetary and fiscal policy mandarins need to address inflation more aggressively, lest it derails the recovery which the Bank has warned could renew pressure on improving bank and corporate balance sheets.
- There is a need to rethink growth engines as well- the pursuit of free trade agreements indicates a fresh stance.
- Revisiting RCEP: The shunning of RCEP needs a revisit, as advised by key ally Japan- lest rivals like Vietnam dent India’s future exports in job-intensive sectors such as textiles.
- Reforming Farm Sector: The farm sector, which has so far been resilient through the pandemic’s worst phases and could now gain due to high global food prices, needs careful handling too.
- While the normal monsoon forecast bodes well for the Kharif crop and hopefully, rural demand, the cost of inputs- be it fertilizers or chicken feed- is rising sharply for farmers too.