Stable And Steady

The Indian Express     2nd November 2021     Save    

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.