Editorial: Bumpy road ahead

While the Indian economy is on the path of overall recovery from the worst hit it took at the start of the pandemic, the situation remains volatile in the face of the rapid surge of the Omicron variant and the informal sector continues to be in the red. Quite a few international agencies have downgraded […]

While the Indian economy is on the path of overall recovery from the worst hit it took at the start of the pandemic, the situation remains volatile in the face of the rapid surge of the Omicron variant and the informal sector continues to be in the red. Quite a few international agencies have downgraded their projections regarding the country’s economic growth. This is largely due to the growing concerns over the impact of the spread of the Omicron variant on business activities and mobility. The International Monetary Fund (IMF) has cut India’s economic growth forecast to 9% for the current fiscal year ending March 31. The IMF projection of global economic growth suggests that the impact of Omicron could prove to be far more serious than the earlier projections. For India, the IMF has slashed the GDP estimate by 50 basis points to 9% from 9.5% three months ago. This projection is less than both the government’s advance estimate of 9.2% put out earlier this month and the Reserve Bank of India’s forecast of 9.5%. This forecast is also lower than the 9.5% projected by S&P and 9.3% by Moody”s. It must be pointed out that the growth in 2021-22 only represents a recovery of the output lost in 2020-21 after the pandemic struck. While India’s overall resilience has been noteworthy, the speed and rate of economic revival remain uneven. The real test for economic expansion lies ahead and the coming union Budget is expected to set the tone for it. The country’s growth trajectory will, however, largely depend on the government’s fiscal policy.

Union Finance Minister Nirmala Sitharaman has an unenviable task on hand to boost growth while maintaining fiscal health. The big challenge before her is the skewed nature of the economic recovery. Several parameters — inflation, unemployment, subdued private consumption and investment and a crippling informal sector — are still in the red zone. Public investment in infrastructure could be a major growth driver. The plausible fiscal risks arising from mounting public debt and deficits need to be tackled with a medium-term roadmap of fiscal consolidation because any drastic move for an immediate deficit reduction can affect the recovery process. The Centre must loosen the purse strings and ramp up capital spending which will have a salubrious impact on the overall economy. This will help in crowding in private investment and push job creation. The government is expected to continue the infrastructure investment along with the asset monetisation programme. Supporting growth should be the priority with a major focus on special measures to stabilise growth through supportive fiscal policies, improving farm prices with aggressive Minimum Support Price (MSP) hikes, and food subsidies. Similarly, there must be increased spending on healthcare and education, and boosting rural income through rural infrastructure and job creation.

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