In Retrospect

Resilient, but inequitable

The resilience shown by the Indian economy in 2022 needs to be coupled with adequate socio-economic interventions in 2023 to reduce inequalities and make India a better place to live in

Resilient, but inequitable

In its most recent estimate of India's GDP, the World Bank has upgraded its growth forecast for the Indian economy to 6.9 per cent from its earlier estimate of 6.5 percent for the fiscal year 2022-23. Praising India's economic resilience, despite a challenging external environment, the World Bank noted that India's economy is relatively insulated from global spillovers compared to other emerging markets. The international bank has also said that despite external challenges, India is expected to remain one of the fastest-growing major economies in the world. India's economic turnaround would look more significant if we recall that two years ago, during the pandemic, the Indian economy had contracted 6.6 per cent in 2020-21. The growth in GDP during 2021-22 was around 8.7 per cent which in real terms would be around 1.5 per cent growth if compared to the pre-pandemic (FY 2019-20) GDP of India. In the first half of the current fiscal (FY2022-23), the GDP has grown by 9.7 per cent (Refer to Table 1).

Economic resilience

There are promising indications of economic expansion during 2022. Nevertheless, it also suffers from many failings. Analysis of a few demand-side indicators (ref table 1) shows robust growth of private consumption (17.2 per cent), gross fixed capital formation (15 per cent), and exports (13 per cent) during the 1st half of FY 2022-23. Supply-side indicators (ref Table 2) reveal that during the first half of the current financial year, growth of gross value addition (GVA) on a year-on-year basis for agriculture, industry and services were 4.5 per cent, 3.7 per cent, and 13.1 per cent respectively.

ADB's 'Asian Development Outlook- Supplement December 2022', also reports that India's PMI (purchasing managers' index) values of manufacturing and export orders, for November, were promisingly improving. The PMI is an indicator of business activity and has a value from 0 to 100. Values below 50 indicate deterioration, while above 50 indicate improvement. For India, both indexes were close to 60.

In the 3rd quarter of 2022-23, domestic passenger vehicles sales, steel consumption, power consumption, and tractor sales have grown at a rapid to modest rate. But in October, eight core industries (coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity) almost stagnated and grew at the rate of 0.4 per cent only.

RBI's Financial Stability Report claims that the resilience of the banking system is also evident from the stress tests conducted by them. The tests showed that banks are fully capable of absorbing macroeconomic shocks, even without any infusion of capital by stakeholders. The report informs that rise in profitability aided the banks to improve their provisions, resulting in the net non-performing assets (NPAs) to net advances ratio falling to 1.3 per cent in September 2022 — the lowest in 10 years. Gross NPA declined to 5 per cent at the end of September — a seven-year low — and is expected to trend down further to 4.9 per cent by September 2023. This was achieved on the back of a decrease in slippages, an increase in write-offs, and a pickup in credit growth, RBI claims. During the last five years, Rs 10 lakh crore in write-offs has helped banks (Scheduled Commercial Banks) to halve their NPAs. Banks recovered only Rs 1.32 lakh crore from write-offs in five years ending March 2022, reported Indian Express.

Apparently, the fiscal deficit is still under control. In February, the Finance Minister set the fiscal deficit target at 6.4 per cent of GDP for FY 2022-23, compared to 6.7 per cent in the previous fiscal year. For 2022-23, the fiscal deficit of the government is estimated to be Rs 16.61 lakh crore or 6.4 percent of the GDP, reported Business Today. As mentioned in Table 4, from April to October of the current year, the fiscal deficit amounted to Rs 7.6 lakh crores. In the current fiscal, debt-GDP ratio is expected to reach 84 per cent which, according to the IMF, is manageable.


Manufacturing: It has remained a major problem. Since Q2, it has moved into the negative zone (refer table 2). Table 3 reveals that production and sales of industrial commodities have declined. Index of industrial production (-4 per cent), cement production (-4.3 per cent), fertilizer sales (-10.4) and merchandise export (-12.1 per cent) have deteriorated substantially in Q3.

Depreciation of INR: In FY 2019-20 INR/USD exchange rate was 74.35 and India's foreign exchange reserve was USD 475.6 billion (ref table 4). Between April 1 and December 16, 2022, the rupee depreciated by 8.8 per cent. In 2021-22 India's foreign exchange reserve was USD 615.6 billion which declined to USD 564.1 billion on December 9, 2022.

Unemployment: Table 4 shows that in September 2022, the urban unemployment rate was 7.2 per cent. However, the CMIE (Center for Monitoring Indian Economy) data had shown that the labour markets made a strong rebound in September, with the unemployment rate dropping to 6.4 per cent, from 8.3 per cent in August, which was the highest level in 12 months. It was primarily rural India that made the bigger contribution to the turnaround in labour conditions. Quoting CMIE, the Business Standard reported that the rural labour participation rate (LPR) rose from 40.39 per cent in August to 40.68 per cent. In June this year, the rural LPR had fallen below 40 per cent for the first time since the pandemic-stricken month of April 2020.

The quarterly survey also showed that the labour force participation rate (LFPR), which shows the percentage of persons either working or seeking work in the population, saw a marginal increase in Q2 to 47.9 per cent, from 47.5 per cent in Q1. Though a marginal decline in unemployment has been reported, the rate of unemployment is fairly high. Over 52 per cent of the labour forces of the country are either not working or seeking any work. Table 4 reveals, during April-November of the current financial year, 22.5 crore persons demanded employment under MGNREGA. It indicates the wretched condition of the current job market.

Rising Price: Inflation is another major problem. Data in table 4 suggest that during April-November of FY2022-23, Consumer Price Index (combined) was as high as nearly 7 per cent. The Consumer Food Price Index was as high as 7.31 per cent and the Wholesale Price Index was 12.35 per cent. All tall claims of GDP growth get eroded due to the high rate of inflation.

Low government spending: Table 1 reveals that government consumption declined substantially in Q2 to 4.4 per cent. This has happened at a time when GST collection in the first eight months of this fiscal has crossed Rs 11.9 lakh crore, compared to Rs14.8 lakh crore in FY 2021-22. In a recession-hit economy, the state is expected to play the leading role in stimulating demand by spending more. In India, the opposite has been observed. It may be mentioned that in the latest (2021-22) Human Development Index — a measure of a nation's health, education, and average income among others — India ranks 132 out of 191, even lower than Bangladesh!

In September, Union Minister, Nitin Gadkari has rightly said: "We are the fastest-growing economy in the world. Our country is rich, but the population is poor, facing starvation, unemployment, poverty, inflation, casteism, untouchability and other factors that are not good for the progress".

Food security: Table 4 suggests, the quantities of wheat and rice procured by the government agencies by paying the MSP to the farmers are low in the current fiscal. In December, the government discontinued the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) as the cabinet did not give any extension to the scheme. Under the PMGKAY scheme, the Union government provided 5kg of wheat and rice free of cost to 80 crores of poor every month. However, the poor (around 81.35 crore) will get rice and wheat (5kg of rice /wheat per person) for free under the National Food Security Act.

It is apparent that the government has discontinued the PMGKY, as it apprehends a shortage of enough food grains to run it along with the food programme under NFSA. A drastic fall (10.4 per cent) in the sale of fertilizer in October 2022 is also a matter of concern for the nation as chemical fertilizer is an essential input for food grain production in India.

Foreign Investment: India has failed to attract substantial FDI (foreign direct investment). During April to October in FY 2022-23, net FDI was only USD 22.7 billion, compared to USD 43 billion in 2019-20. It is reported that the government's production-linked investment scheme for large-scale manufacturing of laptops, tablets, servers, and other IT hardware generated little interest — from both domestic and foreign businesses, reported LiveMint. FPI (foreign portfolio investment) normally fluctuates. But data in Table 4 suggest, since 2019-20, India has observed net outflow of FPI. In April-November 2022-23, the net FPI was -2.5 billion USD.


A high rate of unemployment, contracting of manufacturing, moderately high inflation, and depreciating INR may lead to stagflation. Economists have already cautioned about this possibility.

Rising economic inequality is another major cause of worry. Billionaires' fortunes increased by almost 10 times over a decade and their total wealth is higher than the entire Union budget of India for the fiscal year 2018-19, which was at Rs 24,422 billion, says an Oxfam report.

A January 2020 study by Oxfam suggested that India's wealth gap is wider than ever: The richest 1 per cent hold more than four times the wealth of 953 million people who make up for the bottom 70 per cent of the population. Post the pandemic, inequality has widened. The high-net-worth individuals' (HNI's) population is expected to rise by 80 per cent by 2031, making it one of the world's fastest-growing wealth markets. HNIs are individuals who have a wealth of USD 1 million or more. The number of billionaires in India too has been rising steadily in the last few years, as per a report by Hurun and IIFL, released in September.

The government has not taken any meaningful step to narrow the widening gap. Ignoring repeated suggestions by economists, no additional tax on the super-rich has been imposed till date. Even the general secretary of RSS, Dattatreya Hosabale, said that the poverty in the country is standing like a demon in front of us. 20 crore people are still below the poverty line. 23 crore people have less than Rs 375 income per day. The labour force survey says we have an unemployment rate of 7.6 per cent.

In addition to these, the sale of strategic public assets to meet government expenses is a serious issue before the nation. The finance minister intends to raise Rs 65,000 crore from selling PSUs in 2022-23. This is in line with the statement Prime Minister Narendra Modi made last year on February 24 when he said, "The government has no business to be in business." According to CNBC-TV18, the government plans to bring four important offers for sale (OFS) over the next four months as part of the government's divestment plan. The PSUs include names like Coal India, Hindustan Zinc, NTPC as well as Rail India Technical and Economic Service (REITS). The total divestment from these four companies via the OFS issues could help the government raise about Rs 18,000 to Rs 20,000 crore. For the 2022-2023 financial year, against a divestment target of about Rs 65,000 crore, Rs 24,000 crore has been achieved so far.


Shortcomings and challenges notwithstanding, both global and domestic, the Indian economy has exhibited signs of resilience in 2022. For sustainable development, the government should address social issues and reduce all kinds of socioeconomic inequalities. Deteriorating political instability and social unrest will force the flight of domestic and foreign capital. In 2022, 8,000 high-net-worth individuals (HNIs) migrated out of India. The country also ranks third in terms of HNI movements, coming only after Russia at 15,000 and China at 10,000.

Let's hope, in 2023, both rich and poor will consider our beautiful country as an ideal nation to live in.

Views expressed are personal

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