Home / Opinion / Views /  Our growth imperative bears a covid inflection
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If spring-backs from covid craters in the US and elsewhere (including India) tempted extrapolations of this pace of growth to 2022 and beyond, the World Bank’s Global Economic Prospects Report offers a sobriety check. The trajectory of world output, it projects, is headed for a dip after last year’s upturn. By the report’s estimates, the global economy expanded by 5.5% in 2021, but a “pronounced slowdown" awaits us now, with growth forecast at 4.1% this calendar year and at 3.2% in 2023. Among multiple factors at play, the pandemic’s path will probably keep much value-generation activity on edge until uncertainty weakens into mere risk (which is estimable), even as a flare-up in inflation begins to glare back the largesse of central banks that opened their sluice gates of money in a rescue mission larger than any other in financial history. Post-pandemic projections involve not only more variables than we had in pre-covid times, but also a complex web of links among them that remain mostly untested and require educated guesswork. However, the accuracy of forecasts is not the point here; anticipation of a growth flag-off is.

That global monetary conditions will tighten this year is almost a given, but its extent and impact could vary by what the US Federal Reserve does in response to America’s first big bout of price instability since the stagflationary 1970s. In a bid to contain inflation, the Fed has accelerated its stimulus-reversal plans and is expected to push up the globe’s basic cost of credit via hikes in its policy rate of interest. Even if efforts are made not to let this process turn jerky, a squeeze could leave financial markets shaken and businesses bruised. It is the Fed’s job to let the US dollar lose only an average 2% of its internal value over a year; by last month’s count, it had lost a glaring 7% since December 2020. Yet, the US central bank must also aim to maximize employment, patterns of which have also gone awry and thus widened its scope for error on this other target as well. Like the Fed, other central banks have hopes pinned on a full restoration of disrupted supplies. Meanwhile, pressure may mount on policymakers to address inequalities worsened by covid, and should this bloat fiscal deficits all around, inflation control would get even harder for many central banks to achieve.

In all this, India’s economy would seem to be a bright spot. The World Bank report expects it to grow by 8.3% this fiscal year, a clip projected to go up in 2022-23 to 8.7%, defying the global trend, before it slips to 6.8%. The two latter figures have been notched up slightly from last June’s estimates, but we must secure our recovery before taking to any boastful rhetoric. Given our K-shaped divergences in evidence since the viral outbreak, we could trip into a ‘middle-income trap’ in times ahead, with the earnings of our better off held back by the frugality of a hard-up majority. Spending power needs dispersal. Simultaneously, we should chase external demand with a renewed export thrust to boost recent impulses. State incentives for bulk manufacturers could help, no doubt, but tariff barriers must also decline in tandem for the sake of exposure to world competition, which should act as a ‘stimulus’ for exporters to get globally competitive. The past few years, oddly, have seen import substitution regain some policy favour. Self-reliance, the Centre had clarified in 2020, would not shut us off. Clarity on this needs to manifest itself in India’s growth strategy.

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