Hopes and worries

The year 2009 is now part of history. What are the most significant economic developments in 2009 from India’s perspective? Also, what predications can one possibly make about the likely happenings in the new year?
Despite the continuing global slowdown in many parts of the western world, China and India — the two most  populous countries in the world — have been growing at highly respectable rates. The predication for Indian GDP growth for 2009-10 has now been upwardly revised to be the range of 6.5 -7 per cent by several official spokespersons. Sceptics, however, raise some doubts about whether this high growth can be sustained when the fiscal stimulus package and the easy money policy would be gradually withdrawn over the year 2010.
Optimists point to the more permanent features like the impact of NREGS and high MSP for agricultural products on rural incomes and the effects of  6th Pay Commission salary hikes on urban demand.
So, growth is not the major worry. The biggest concern continues to be the food price inflation which has touched nearly 20 per cent. Again, the official prediction is that it would moderate when the rabi crops would arrive in the market. The government also hopes to procure more foodgrains in the coming year compared to the last year to be able to supply a larger quantity of foodgrains through the PDS. More imports and cutting down import duties should also help to contain the food price inflation.
However, to the extent there is a global shortage of pulses and foodgrains (specially wheat and rice) leading to a rise in global prices, the downward impact of imports on prices of these food articles in India would be less than otherwise. The best that we can hope for is that even if food prices continue to rise, the rate of inflation (that is the rate at which prices rise) would come down.

Because of the continuing high growth, the overall unemployment situation in India has worsened much less than in the western countries. The adverse employment effect has been more pronounced in sectors which are more dependent on exports like IT,  gems and jewellery and readymade garments. The widespread drought followed by floods hurt employment and incomes in agriculture on which 60 per cent of population depends.
With hopes of a regular monsoon in 2010 and export orders picking up (export growth has just turned to be positive after a year of negative growth) as the global economy slowly recovers from the worst recession since the Great depression, the plight of joblessness should moderate in 2010.
Wide scope
With the enlargement of G-8 into G-20, India’s voice and influence in global economic policy making has increased. The centre of economic gravity is also changing in favour of Asia. India’s FTA with ASEAN has become operational from January 1. Though right now only three countries out of the 10 member ASEAN — Malaysia, Singapore and Thailand — have ratified the agreement, these three economies account for 90 per cent of India’s trade with the ASEAN economies. The increasing integration with the high growth Asian economies would present new opportunities as well as challenges for Indian industry and specially Indian agriculture.

Virtually no progress has been made to bring the contentious Doha trade talks to a conclusion. The Copenhagen Climate Summit only brought about some pledges but no binding agreements on global carbon emissions. Nonetheless, the continuing concern over the  global warming and the search for cleaner technologies and products open up huge new business opportunities in areas like solar panels, hybrid and electric cars, clean coal, wind and nuclear power. It is for Indian businesses and entrepreneurs to exploit these opportunities by being a cheap and efficient producer.
With the likely hardening of interest rates in USA and Europe, the flow of portfolio money into Indian stock market may slow down. That would dampen the stock market rally in India. As the world economy tries to rebalance by cutting consumption in US and raising consumption in Asia, a lot of currency realignments may be needed. All these would mean that the volatility in the stock markets and the currency markets would continue in the year 2010.

As the global recovery would continue leading to rise in jobs and incomes all over the world, the demand for oil would pick up. As a result, another round of oil price hike may well recur. This would further strain India’s trade balance, the government’s oil subsidy bill, the cost of production and transportation and consequently prices of almost everything.

The huge infrastructure deficit would continue to haunt the Indian economy. Despite volumes of talk and debates on PPP and other models, the severe power shortage, the bad roads, congested ports and airports would continue to seriously compromise India’s achievement, specially in its quest for  ‘inclusive growth.’
In education and health care, we would definitely see entry of more private — including foreign —  players. However, a big question mark remains over whether the benefits would reach the bottom 30 per cent, except perhaps in the form of providing some low-skill jobs (like cleaning, security) in such facilities.
(The writer is a former professor of economics at IIM, Calcutta)

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