Stable And Steady

Context: India’s economy and its policies during the onset of the pandemic and post pandemic period.

Challenges before post pandemic global economic recovery

• Shifting recovery momentum: Recovery momentum in first half of 2021 is decelerating in many countries, although the direction and momentum may vary.
• Growth slowdown in China: 2021 July-September quarter GDP growth at 4.9%, compared to 7.9% in the previous quarter.
  • Broader picture: China’s determination to push ahead with structural reforms, de-carbonising initiatives, and curbs on real estate are designed to sacrifice short-term growth for medium-term efficiencies, and reduce financial risks and inequalities.
• Inflation risks around the globe:
  • In US: Personal Consumption Expenditure (PCE) survey registers inflation running over 4%. A similar trend is witnessed in Europe as well.
  • In India: Recently, inflation figures came down to 4.35% due to lower food prices from around 6% which persisted throughout 2020.
  • Risk of stagflation: That is, a state of high inflation and high unemployment, as employment recovery had been week throughout.
• India’s precarious energy prospects – Rising fuel prices:  Crude oil prices remain the biggest concern, with the benchmark Brent price shooting up to $85 per barrel recently.
  • A spill over spike is also seen in natural gas, metals, minerals, ores, and select foods.
• Recalibration of monetary stimulus: Amidst continuing price shock, a monetary tightening across countries is around the corner.

India’s preparedness to recovery risks: An overview of promising indicators

• Consumer non-durables (FMCG) and durables are doing well: Data from retail companies indicate that.
• Urban demand is also reviving.
• Demand for consumer loans growing strong: Feedback from financing companies suggest that festive season demand for consumer loans is strong.
• Exceptionally well performing residential real estate: Aided by low-interest rates on home loans, cuts in stamp duty and registration charges, and indeed behavioral shifts towards own home ownerships with hybrid and work from home shifts.
• Commercial real estate sector is also reviving: On wake of demand from IT, tech, data centres, and city centre warehousing for e-commerce companies.
• Large unspent cash balances of Union Government: Which can be judiciously deployed to boost both capex and consumption.
• Rise in wages: Anecdotal evidence of labour market tightness in IT, tech, financial services, etc., is reportedly pushing up wages in these segments.

Conclusion: The growth–inflation signals remain mixed. Yet, India’s economy and its policy matrix are now well-positioned to manage a range of plausible outcomes.