February , 2023
Global economic trends impacting India
22:46 pm

Kishore Kumar Biswas

The world economy is anticipating inflation and recession. The developed countries are particularly worried about it. The heads of organisations like the International Monetary Fund are categorically pointing out about continuing high price inflation and the high possibility of several economies entering into recession. To tame inflation, central banks of the world have been increasing policy rates.

On October 25, 2023 the United Nations released a report titled ‘United Nations World Economic Situation and prospects 2023’. The report mentions that in 2022 the world average GDP growth rate was 3%. But it may come down to 1.9% in 2023, the lowest in several decades. The report also stated that it may go up to 2.7% in 2024 – depending on favourable conditions.

On January 16, 2023 in the annual meeting of government and non-government business heads, a survey report of the World Economic Forum was placed. The report mentions that two thirds of the government and non-government economists of the developed countries of the world believe that the world economy may enter into recession in 2023. Out of that, about 18% specialists think the possibility of recession is very high.

One new phenomena of weakness have been the very low growth of GDP in China. With 3% GDP growth in 2022, China has never experienced such a low figure after 1976. But in the coming days, China will move forward with much higher growth of GDP as it has already implemented the zero Covid policy and relaxed restrictions. As the second biggest economy, China can absorb global economic shock to a considerable extent. So the performance of the Chinese economy is very important to minimise the impact of the slowing global economy. In this perspective, one should consider some matters of the Indian economy.

Indian perspective

In India, the growth of inflation is muted but anxiety remains. After about a period of a year the rate of inflation growth has been coming down from November (both retail and wholesale inflations). On the basis of the reports published on January 16, 2023 wholesale inflation rates came down to 4.9% from 16.6% in May 2022. The retail inflation was 7.4% in September and it fell to 5.7%. But the most important factor for lowering inflation has been the lower prices of vegetables, particularly, potato, onion and tomato. More importantly, the prices of vegetables fell by 8% in November and 15% in December. But during the same period, the price of wheat increased by 22% and that of average corn by 13%. Moreover, prices of pulses, egg, meat, fish milk and spices have been still rising. So, the trend of price movement cannot be predicted easily at this point of time. A few days ago, Shaktikanta Das, Governor, RBI hinted about another enhancement of policy rates. So core inflation, that is, headline inflation minus food and fuel inflation is still a concern. The fuel inflation may rise if the Chinese economy advances at a higher speed.

India’s export growth yet to be affected by faltering western economies

India’s export growth is slowing. The government is targeting the weakening western economies. In December 2022, it was seen that India’s exports fell very steeply. The fall in exports was the highest in two years. The value of export stood at 43.4 billion, about 12% lower than a year ago, according to a report. Actually, in the last three months, exports fell twice on a year-on-year basis. Many observers consider that the faltering of export had been due to economic headwinds of the US and the European economies and China’s strict reservation in several sectors to check Covid 19.

But many are sceptical of this argument. One is the high base effect, 439.3 billion in December, 2021-22 had a role to show low export value. Moreover in 2021-22, India’s total export reached 4422 billion. The Hindu editorial (January 21. 2023) points out that for the first nine months of 2022-23 India’s exports are still at 9.1% - higher than a year ago but slightly lower than the 11.1% rise recorded till December 2022.

Secondly, S7P’s Global India Manufacturing Purchase Managers Index showed low export orders. As per reports, US’s retail sales signals the sharpest slump in 12 months. This implies the demand for finished products or inputs is going to weaken further in the coming days, leading to further shrinkage of Indian exports. Additionally, when China will reopen, India has to face harder competition in the international market.

What India needs

India requires more public and private consumption to boost its economy. This is because the consumption sector is about 55% of the total demand of the economy. India’s government capital expenditure was high in the last FY. That should be continued.    


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