The Economic Survey projects GDP growth of 6.3-6.8% in the coming financial year, with manufacturing—a key concern—growing at 6.2%. It hails “stellar progress” in bringing government finances on track, an indication that Saturday’s budget will project attainment of the five-year target of reducing the fiscal deficit below 4.5% of GDP.
Inflation is likely to fall in view of a good harvest and favourable international trends. Emphasising India’s sound economic fundamentals, the Survey contends that faster economic growth should be driven by deregulation and falling costs of business rather than larger fiscal stimuli. The operating principle of regulations should shift from “guilty until proven innocent” to “innocent until proven guilty”.
The Survey devotes considerable space to the potential of artificial intelligence in improving productivity, as well as risks to security, employment and privacy. With sombre realism, it accepts that the era of rapid world trade growth is over. This will pose difficulties for Indian competitiveness and exports. The country should go all out to attract foreign investment and take advantage of the China+1 play.
The new Cold War between the West and China has resulted in economic fragmentation. The main impact is increase in uncertainties, which are fatal to animal spirits critical for driving investment. These are going to skyrocket with Donald Trump becoming US President.
Hence the Survey raises a key question: Can the acceptable limit for a current account deficit remain as high as 2.5-3.0%, as hitherto? Perhaps the limit should now be considerably lower. This means pulling out all the stops to attract foreign direct investment and providing tax and regulatory certainty.
The Survey does not speculate on possible Trump tactics—nobody can say exactly what he will do, since he constantly says different things and is not interested at all in coherence or predictability. But this results in excessive optimism in the Survey. It fails to mention that it is being presented at a time when the rupee as well as stock markets are falling at daunting speeds.
Trump has created so many uncertainties that global investors are pulling out of emerging markets like India and shifting to the safe haven of the US. The result is a fall in all emerging market currencies, and the RBI’s attempts to stabilise the rupee are reducing its competitiveness with other EM exporters. For years the stock markets have been resilient in the face of foreign exits because of strong domestic investment, but not any longer: for the first time in years, the one-year return on Systemic Investment Plans (SIPs) has turned negative.
This suggests that GDP growth will be at the bottom end of the Survey’s 6.3-6.8% range, or maybe much lower. Animal spirits are low among Indian corporates as well as foreign companies interested in investing in the country. Corporates will hesitate rather than rush ahead confidently with investment or new initiatives.
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The Survey devotes considerable space to the potential of artificial intelligence in improving productivity, as well as risks to security, employment and privacy. With sombre realism, it accepts that the era of rapid world trade growth is over. This will pose difficulties for Indian competitiveness and exports. The country should go all out to attract foreign investment and take advantage of the China+1 play.
The new Cold War between the West and China has resulted in economic fragmentation. The main impact is increase in uncertainties, which are fatal to animal spirits critical for driving investment. These are going to skyrocket with Donald Trump becoming US President.
Hence the Survey raises a key question: Can the acceptable limit for a current account deficit remain as high as 2.5-3.0%, as hitherto? Perhaps the limit should now be considerably lower. This means pulling out all the stops to attract foreign direct investment and providing tax and regulatory certainty.
The Survey does not speculate on possible Trump tactics—nobody can say exactly what he will do, since he constantly says different things and is not interested at all in coherence or predictability. But this results in excessive optimism in the Survey. It fails to mention that it is being presented at a time when the rupee as well as stock markets are falling at daunting speeds.
Trump has created so many uncertainties that global investors are pulling out of emerging markets like India and shifting to the safe haven of the US. The result is a fall in all emerging market currencies, and the RBI’s attempts to stabilise the rupee are reducing its competitiveness with other EM exporters. For years the stock markets have been resilient in the face of foreign exits because of strong domestic investment, but not any longer: for the first time in years, the one-year return on Systemic Investment Plans (SIPs) has turned negative.
This suggests that GDP growth will be at the bottom end of the Survey’s 6.3-6.8% range, or maybe much lower. Animal spirits are low among Indian corporates as well as foreign companies interested in investing in the country. Corporates will hesitate rather than rush ahead confidently with investment or new initiatives.
