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On India & the pandemic
India, along with the world, lost two years from the development trajectory because of the Covid-19 pandemic. It left scars – in terms of mortality, health outcomes, educational outcomes, etc.
India has, however, done far better than the rest of the world. Two years ago,
it was said that India would not be able to handle the pandemic. In April 2020, it was said that millions of people would die. It was said that India would not be able to vaccinate its people. It was also said that it would not be able to produce its own vaccines. Such voices have been proved wrong. India not only produced its own vaccines, it exported them, too. We have handled this completely exogenous crisis reasonably well.
One of the reasons why we handled this relatively well is because of the Union government’s emphasis, since May 2014, on providing “basic necessities” — health, subsidised food, sanitation, toilets, all of that.
On the role digital played during Covid
Add to that the digital part of it. The fact that things were digital made it all the more easier. I am sure one of the things that India would like to flag at G20 meetings is its success in handling the pandemic and also its success in digital financial inclusion (the vaccination certificate, to cite an example, especially when compared with many of the developed countries).
On deceleration in growth & supply side reforms
India’s economy had begun to decelerate even before the lockdown. This financial year, there is a consensus, not in the government but even outside, that we would end the year with the real growth rate at 6.8 per cent to 7 per cent.
The Narendra Modi government, since May 2014, has done a lot on supply side reforms. Supply side reforms lead to efficiency gains in the long run, even if they don’t lead to immediate gains.
It’s true that fiscal deficit has gone up, but since 2014, the government has been fairly conservative, fiscally. Some developed countries are in trouble because fiscally they were reckless.
The Union government has fundamentally spent on capital expenditure apart from the food part. I think, in the medium term, we are in the band of 6.5 to 7 per cent growth rate. There has been a structural break from the deceleration of 5.5 per cent. Next year, I am inclined to think it is going to be 6.5 per cent.
Exports are going to be in somewhat bad shape because of what is happening in the world, on the Russia-Ukraine front, protectionism etc. Government expenditure, primarily capital expenditure, is the challenge for the Finance Minister. On consumption and investments, there are signs that recovery is happening.
By 2047, we should have a per capita income of $10,000, which takes India to the upper middle income category. India should be in the high human development category by then.
On transparency in fiscal numbers
With the current Union Finance Minister, numbers have become much more transparent. She doesn’t get enough credit for this, though. Whatever is promised, we get it.
On fiscal deficit & debt
In 2025-26, the FM has said that we aspire for our fiscal deficit to be at 4.5 per cent of GDP. So, from 6.4 per cent, it has to come down to 4.5 per cent. Is it possible, given the time band? It’s possible, but difficult. We will have to wait for the budget for the numbers, but I think, in this budget, one will have to reduce it from 6.4 per cent to 5.8 per cent, to adhere to the target.
Fiscal deficit is the end product. The critical issue is debt. The Union government’s debt has gone up, yes, because of Covid, but it’s not alarming.
On private capital expenditure
On private capital expenditure not taking off, I would say these are early days. There was excess capacity in some sectors. Now consumption is beginning recover. Private capital expenditure will go up. It’s a matter of time. It has recovered in some sectors. In some sectors, the investments are happening, and India is becoming part of the global supply chain.
Europe is heading towards a recession. The US economy is not in a very good shape. India is much better prepared as far as any Covid exigency is concerned, especially in the context of the Covid surge in China.
In the face of external uncertainties, yes, we will not achieve 9 per cent growth rate, but I can certainly hope to have 7 to 7.5 per cent rate of growth.
Apart from growth there is a greater volatility – forex markets, capital markets, commodity markets. Preparing for the worst means several things. In an uncertain world, it’s dangerous to be import-dependent on one single country. We are dependent on imports for oil. We need to diversify.
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