Experts Analyse India’s Economic Landscape in the Wake of Global Shifts
In a recent interview with ‘India Today’, Kaushik Basu, former Chief Economist of the World Bank and Professor at Cornell University, highlighted India's unique position in the global economy. He emphasized that the growing divide between Western nations and China has placed India in a favourable position for foreign investments. Basu praised India's foundation built on democracy, free media, and secularism but also acknowledged challenges such as high-income inequality and weak private investment.
Demand Deficiency: A Critical Aspect of Economic Health
Economists universally recognize the significance of aggregate demand in driving economic growth. The economic crisis in any country often stems from inadequate demand for its goods and services. This fundamental concept, encapsulated in John Maynard Keynes’ observation that “demand creates its own supply,” remains pivotal in economic analysis, especially in the 21st century.
Indian Economists Address Weaker Demand Challenges
Prominent Indian economists, including Abhik Barua (Chief Economist, HDFC Bank), Suresh Narayanan (Nestle Chairman), Adity Nayar (Chief Economist, ICRA), Rahul Bajoria (MD and Head of EM Axis, Barcleys), and Madan Sabnavis (Chief Economist, Bank of Baroda), have expressed concerns over the declining demand for goods in India. Several factors, such as insufficient rural demand, persisting income inequality, and the waning pent-up demand post the Covid-19 period, have been identified as major contributors to this issue.
Experts have noted the fading pent-up demand resulting from pandemic-induced forced savings and the impact of a tightened monetary policy on reducing overall demand levels. Barua emphasized the visible effects of income inequality on the economy, with consumers either favouring more affordable options or smaller pack sizes, a phenomenon known as downtrading.
Government Revenue Challenges and Tax Buoyancy
Issues related to government revenue have also come to the forefront. Wholesale Price Inflation (WPI)-based inflation, a crucial measure for nominal GDP, has remained negative since April. Devendra Panth, Chief Economist at India Ratings and Research, expressed concerns about the anticipated positive WPI inflation not materializing as expected. Additionally, experts like DK Srivastav, Chief Policy Advisor at EY India, emphasized the importance of tax buoyancy, where tax revenue growth outpaces GDP growth. However, projections made by the Government of India indicate challenges in achieving targeted revenue figures, which may impact fiscal plans.
In conclusion, while India finds itself in a favourable global position, addressing demand deficiencies and revenue challenges remains imperative for sustaining economic stability and growth. Experts continue to monitor these factors closely to formulate effective policies for the nation's economic well-being.