BY SANJAY ROY
The post-pandemic recovery of the global economy that accelerated in 2021 is expected to slow due to expectations of rising inflation,
the continuation of the war, the restrictions due to the COVID-19 pandemic and the protracted real estate crisis in China as well as slower growth than
expected consumer spending in the United States. While global growth rates are revised down from 6.1% in 2021 to 3.2%
cent in 2022 and 2.9% in 2023, inflation expectations are high due to soaring food and energy prices.
The average inflation rate in developing countries is expected to be 7.3%. A large part of the world’s population is likely to be
pushed below poverty in 2022 with credible growing threats to food and energy security. Real wages stagnate or cannot
keep pace with rising prices leading to a crisis in the cost of living around the world. The overwhelming concern of central banks to control inflation
raising interest rates is likely to have a long-term moderating effect on economic growth.
The prevailing optimism that emerged at the end of the pandemic, mainly due to the easing of supply-side constraints
economies have returned to normal, appear to have shrunk due to looming stagflation. For developing countries, another
the concern is the forecast of a sharp deceleration in commodity prices as well as the restrictive monetary policy of central banks increasingly
pressure on national currencies against the dollar. According to the World Economic Outlook, the expected growth rate for India
in 2022 and 2023 are 7.4% and 6.1% respectively, which, although moderate compared to the global average,
a shadow over expectations of a rapid resumption of the pandemic scenario.
Quarterly growth estimates released by the Office for National Statistics for the quarter ending June 2022-23 are still below
the expected recovery. Private final consumption expenditure improved by around 10% compared to pre-pandemic levels
mainly driven by the partial resumption of contact-intensive jobs in the urban segment in India. Although agricultural production has increased, it has
has not translated into strong growth in rural demand. Despite an impressive recovery in the quarterly year-on-year growth rate of services
and construction recording double-digit growth, manufacturing growth was less than 5%. The annual change in the index of
Industrial production is at a 4-month low in July 2022, posting 2.4% growth, down from 12.8% in the first three
months of 2022-23.
Similarly, electricity production increased by 2.3% in July 2022, while between April and June it increased by 17.1%. Growth in the
production of durable consumer goods fell to 2.4% in July 2022, from 27% in the first quarter of 2022-2023. These are all
signs of disappearance of the low base effect and inflation affecting domestic consumption demand. It is also important that trade
and hotel sectors have still not reached pre-pandemic production levels. Since manufacturing and retailing are sectors that create
the bulk of non-agricultural employment in India, weak growth in these sectors explains the slow job recovery.
The growth figure for the whole economy of 13.5% recorded for the first quarter of 2022-23 may seem impressive due to
the low base of years past, but a closer look at the GDP numbers just suggests that in 2022-23 we are only 9% higher
than our pre-pandemic production. Corporate profits that soared during the pandemic have moderated due to higher input prices.
The other concern is rising deficits on the external front, with imports increasing by 37.2% and exports by only 14.7%. The
the trade deficit in goods increased steadily and reached 28 billion US dollars, which was the largest deficit in goods
experienced by India. The exchange rate of the rupee against the dollar hit the eighty mark, causing our import bills to rise sharply while a drop
of the exchange rate made our exports relatively cheaper in the external market but did not trigger a considerable increase in exports due to the
sluggish world market. The Reserve Bank of India raised the repo rate to limit capital outflows amid
a rise in interest rates announced by the major central banks with a view to controlling inflation, but the fall remains uncontrolled. On the
on the other hand, rising interest rates have increased the cost of loans for the middle class and have dampened both investment
and demand for durable goods.
Food inflation is on the rise again. According to August 2022 Consumer Price Index (CPI) figures, food inflation is 7.57
percent. In urban and rural areas, the respective figures are 7.64 and 7.48. More worrying is the fact that cereal price inflation
prices were much higher, 9.57% and grain inflation is higher (10.08) in rural areas than in urban areas (8.65).
Vegetable prices soared during this period, registering an inflation of 13.23% and spice prices increased by 14.09%.
Food inflation seriously harms the poor because the share of food in their consumption basket takes on larger proportions compared to
that of the rich. As income increases, the share of food in the consumption basket gradually decreases. So with rising prices
the possibility of reducing food consumption for the poor increases or the consumption of necessary non-food consumption must be reduced
with stagnant income.
Admittedly, the slowdown in growth can be partly explained by the disappearance of the low base effect, just like the recovery immediately after
the pandemic has manifested itself in high growth rates in different sectors, but leaving aside the abnormal fluctuations of the backdrop
of the pandemic, the economic scenario points to deep-rooted problems. This is reflected in the employment scenario which shows
a relative increase in non-professional employment in the recent period marking a shift in employment from the agricultural sector to the lower end of the range
informal activities again while salaried jobs in the immediate past show a decline.
The main concern is the labor participation of young people aged 15 to 24. In 1994, the proportion of employed people in this age
group in India was 43.4% which has been declining over the years to 23% in 2020. According to Global Development
indicators, this labor participation rate is much lower than that of advanced countries which were 50.6% in the United States and 42%
cent in OECD countries and even much less than the figures of neighboring low-income countries such as Pakistan (38.9) and
Bangladesh (35.3). The facts show that India has not been serious at all in taking advantage of the demographic dividend that
is an opportunity for countries to have a greater share of the youth workforce.
The demographic dividend indicates a demographic phase where the ratio of the dependent age group of the population to the
working age group is shrinking and the country has the opportunity to achieve higher growth rates by taking advantage of the higher share
of the younger population. But this is conditional on the young population being employed in productive activities,
otherwise, demographic change does not help in itself. Given the emerging scenario of low growth, high inflation and low
employment it is the largest mass of workers who will lose income while Gautam Adani becomes the second richest
person in the world according to Forbes Real-Time Billionaire Rankings. Changing the direction of economic policy is the need for