Infra high cost, sliding industry
High inflation exacerbates the budget situation riddled with high debt, causing imbalances
The government has the daunting task of delivering a low cost, high growth, debt sustainability extraordinary budget even as it faces the third wave of the pandemic. It is a challenge to meet Prime Minister Narendra Modi’s stated GDP target of an economy of $ 5,000 billion by 2025, and to adjust, if not control, high inflation of 14.2 %. Now the estimates are for a budget of around $ 2.6 trillion by 2025. The pandemic has certainly reduced achievements by around $ 200 million to $ 300 million. The high inflation exacerbates the fiscal position of the government saddled with high debt and causing imbalances, affecting growth. The IMF observes that the central government deficit fell to 8.6% and that of the States to 12.8% in 2020-21 mainly due to Covid-19. Bank credit is also moderate. The government must build up a provision of Rs 4.38 trillion due to the delays of 470 projects. With offline mode and other restrictions impacting the economy, this in itself is a challenge. It must also take into account the increasing pressure on the health sector and control public debt vulnerabilities. It is not easy to mend. He must abandon the many expensive and worn-out infrastructure investments. The not-so-well-planned road network has resulted in additional costs to the rural system as the neighborhood moves further away and people are forced to pay higher fees and tolls. Some small and medium-sized towns and townships are inundated with overflights and subways affecting their functionality, aesthetics and ability to maintain high-cost infrastructure. Singer the west is not paying. He calls for a reduction in imports of products that could be made locally, such as cement railway ties, to save forex. The 2021-22 Economic Survey does not see high debt as an issue in India’s situation, but it certainly raises debt service issues. The ES believes that since interest rates are low, the country would be able to maintain them. A sustained rate hike could threaten the RBI’s arguments to keep borrowing costs lower for longer to support the economy, given its mandate to keep consumer price inflation within range. target of 2 to 6%.
The biggest concern is that private final consumption expenditure (CCTB) still did not reach pre-pandemic levels in the September quarter. The CCTB is the largest component of India’s GDP and its weakness suggests that the recovery is still not widespread and is being driven by the rich. During the pandemic, the large unorganized labor sector is paying the price. The Indian Economic Watch Center estimated that more than 130 million daily bets in urban centers were left jobless and homeless. The Indian economy has been struggling for most of the last decade – 2011-21. Exports are stuck at around $ 300 billion for almost a decade. The 68-day global lockdown has prevented India from rebounding on manufacturing or exports. The country is losing market share to smaller competitors like Bangladesh, whose remarkable growth relies on exports. Revenue projections remain moderate. India’s Economic Advisory Board to the Prime Minister expects the country to experience real growth of 7.7-7.5%. Revenues collected may be moderately higher. But the country that needs higher doses of cash injections may not find it easy to manage its finances. The major problem is that the industry which contributed 26.5% in 2019 is declining and agriculture with 15.6% is supporting growth. The future trend could remain inflationary and the trajectory towards 2022-2023 would remain bumpy but should stabilize if the pandemic abates.
(The writer is a seasoned journalist. The opinions expressed are personal.)