Indian Economy during Crisis

Professor: Ramkrushna Panigrahi

Area of Specialization: Finance and Economics

The performance of the Indian economy in the year 2022 has been quite impressive despite the global chaos witnessed after the Russian military campaign in Ukraine.  The nominal GDP of India has crossed USD 3.3 trillion and reclaimed its position as the world’s 5th largest economy.  Also, for the first time, the market capitalization has gone past our GDP despite huge uncertainties in the global capital markets.  All the economic indicators are reaching newer heights breaking all previous records, even though we are still far from what possibly we should have achieved in terms of per capita indicators.  Due to the pandemic and ongoing Russo-Ukraine conflict, the inflation rates in developed countries like US and UK have gone beyond the 9 percent mark. The inflation rates in other major economies have also been difficult to contain.

However, India has managed the inflation rates with prudent policy rate hikes over the last few months.  Looks as if the policymakers have insulated the Indian economy from external uncertainties. Since India is now integrated with the world economy with a far greater trade share, it will become increasingly difficult to insulate the economy from global financial and economic turmoil.  Unfortunately, political relations among neighboring countries are becoming more hostile and with China’s aggressive stance against India and its economy, policymakers need to think beyond the existing new classical prescriptions to sustain an 8 percent plus growth for the next few years. 

The economic and political crisis of Sri Lanka has served as a warning to all nations that there cannot be any substitute for prudent economic policy.  The Chinese stance on Sri Lanka during the crisis is a lesson for economies having unstainable economic ties with economic superpowers hoping to ride on their back.  The Chinese strategy of debt entrapment of smaller neighboring countries for political gains and geopolitical dominance will find little success in the contemporary environment.  Such predatory strategies will only vitiate the political atmosphere and become detrimental to terms of trade for all participating nations in South Asia. Despite a hostile trade environment since the beginning of the pandemic, India has done well in improving exports and reducing trade deficits in recent quarters compared to other countries.

There are just too many indications of an impending global recession with economic superpowers playing safe to protect their economies.

Also, the pandemic is far from over, even though restrictions are no longer that stringent.  A politically hostile global scenario and a squeezed global supply chain will make the going difficult for policymakers around the world.

India needs to cautiously determine its macroeconomic policies to sustain its growth momentum.