A new year dawns today but the long shadow of the past year has not lifted. The unexpected international financial crisis of 2008 determined the course of 2009.
The unprecedented pandemic of 2020 determined the course of 2021. So will the unusual concatenation of events of 2022 determine the course of 2023. The impact will be felt in all the economies of the world and India will not be an exception.
The government of India, of course, disputes such a forecast. For the BJP government, India is exceptional. The government alone believes that in 2023 growth will be higher, inflation will moderate, the unemployment rate will decline, despite the US Fed continuing to raise interest rates net capital flows to India will increase and, notwithstanding the Russia-Ukraine war, global trade will rise. I suppose one could be equally optimistic and predict that despite the indifferent batting of India’s top order, Ravichandran Ashwin will take India to a historic triumph in the ICC World Cup 2023. As the saying goes, ‘if wishes were horses, beggars will ride’.
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I wish government leaders and senior officials will read their own reports and the reports of world organisations. Here are some reports on the state of the Indian economy.
1. The Outlook: The balance of risks is increasingly tilted towards a darkening global outlook and emerging market economies (EMEs) appear to be more vulnerable, even though incoming data suggest that global inflation may have peaked (RBI Bulletin, December 2022, State of the Economy).
2. On inflation: Inflation may be slightly down, but it is certainly not out. If anything, it has broadened and become stubborn. India is poised to achieve the first milestone in its price stability objective – bringing headline inflation enduringly into the tolerance band during 2023-24. Yet, with inflation projected to turn up in the second quarter of next year, there can be no letting down of the guard. On domestic inflation: CPI core inflation continued to remain steady at 6.0% for the third consecutive month. In terms of regional distribution, rural inflation at 6.09% was higher than urban inflation (5.68%) in November 2022 (ibid).
3. Global Growth: The Organisation for Economic Co-operation and Development (OECD) has pegged global growth for 2023 at 2.2% that is 90 basis points below the forecast of 3.1% for 2022. India’s growth rate has been lowered from 6.6% to 5.7 % (https://www.oecd.org/ economic-outlook/ november-2022#gdp).
4. Global Trade: According to the WTO Goods Trade Barometer released on November 28, 2022, trade growth is likely to slow down in the closing months of 2022 and into 2023. The current reading of 96.2 is below both the baseline value for the index and the previous reading of 100.0, reflecting cooling demand for traded goods (https://www.wto.org > news22_e).
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5. Trade Deficit: India’s trade deficit during the 8 months of April-November 2022 was $198.4 billion as against $191.0 billion for the whole year of 2021-22. Of this, the trade deficit with China alone was approximately $73 billion (DGCI&S).
6. Current Account Deficit: The current account deficit (CAD) is expected to widen this year. The IMF estimates the CAD as a per cent of GDP to widen to (-) 3.5% in 2022-23. The World Bank estimates a CAD at (-) 3.2% (Ministry of Finance, Monthly Economic Review, November 2022).
7. Fiscal deficit: The Budget for 2022-23 promised an improvement in the fiscal deficit (FD) from 6.7% in the previous year to 6.4%. In December 2022, the government presented supplementary demands for Rs 3,25,756 crore. When asked what will be the source of financing, the finance minister hinted that the government will get the additional money through buoyant tax revenues and asserted that the FD limit of 6.4% will not be breached. This was on December 21, 2022. Barely 48 hours later, the Cabinet met and decided that the subsidised foodgrain under the National Food Security Act (NFSA) will be distributed free of cost in 2023. The bill: Rs 2,00,000 crore which was not part of the supplementary demands (though there was a sum of Rs 60,111 crore tucked in for NFSA). My conclusion: 2023 will begin with the threat of overshooting the FD target (Ministry of Finance, RS Debates)
8. On unemployment: As per the household survey of the Centre for Monitoring Indian Economy (CMIE), the all-India unemployment rate on December 29, 2022 was 8.4%. Of this, the urban unemployment rate was 10% (CMIE).
9. On recession: The 10-year US treasury yield fell by 44 basis points in November 2022 while the 2-year G-sec yield eased by 17 bps, thus intensifying the magnitude of yield curve inversion and suggesting looming signs of recession (RBI Bulletin, December 2022, State of the Economy).
I am afraid the government is yet to realize that the things not under its control outweigh the things under its control. The Russia-Ukraine war, the disruption of supply chains, commodity prices especially the price of oil, and the new variants of coronavirus mean that India will step into a world of uncertainty in 2023.