Elsewhere in the world it is much the same; we also look at the Economy
Auckland, August 15, 2020
More than a billion people in India and at least 30 million people of Indian origin constituting the Indian Diaspora across the Continents will mark the 74th Independence Day of their Motherland today (August 15, 2020) and celebrate the 73rd Anniversary of their freedom from Britain on this day in 1947.
While the country has earned an exclusive place of pride, honour and dignity as the world’s largest democracy, political stability has been underscored by a strong federal government over the years, especially since May 2014 when Narendra Modi led his Bharatiya Janata Patty (BJP) to victory, thrashing the Congress Party at its allies at the pools. He and his Party received a more massive mandate at the elections held in April/May 2019 and with the BJP gaining ground in several States, India is repeating its political history of Post-Independence era of political stability inspiring business and societal confidence.
In today’s world of interconnectivity, that confidence is manifest in increasing flow of Foreign Direct Investment (FDI) and international financial institutions.
The gripping pandemic
The Covid-19 pandemic has wreaked havoc in India, with the first case reported on January 30, 2020. Since then, the incidence of the Virus has escalated and the country today has the third largest number of cases in the world, after USA and Brazil.
As at August 14, 2020, almost 2.5 million cases were on record with about 65,000 deaths.
India’s case fatality rate is among the lowest in the world at 2.41% and is steadily declining.
On March 22, 2020, India observed a 14-hour voluntary public curfew at the instance of Mr Modi.
It was followed by mandatory lockdowns in Covid-19 hotspots and all major cities.
While the Modi government is doing its best to soften the blow that Coronavirus has had on the economy, adverse effects are inevitable.
Goldman Sachs has projected that the economy will contract by 5% during the 2020-2020 fiscal year. The government has implemented a US$ 265 billion stimulus equivalent to 10% GDP.
However, economists have put the package’s true value at about 1.5% of GDP. The accelerating spread of the virus across India has the potential to generate staggering economic costs.
As ‘The Diplomat’ said, there is however reason for optimism.
“Necessity is the mother of reform. India only opened its economy and launched its reform agenda in 1991 because its economic situation was so dire. Facing sovereign default, it had no choice but to systemically reform its economy. With the economy cratering while tens of millions of young Indians enter the workforce for years to come, the necessity, and therefore likelihood, of reform will increase. Already, to combat 26% unemployment at the height of India’s lockdown, Indian states gutted longstanding labor regulations, and momentum is increasing for land reform.”
Economic reforms need boost
The United States should strongly encourage India’s domestic economic reforms. India can only be a bulwark against China if it has the economic heft to sustain it. Achieving this can involve traditional carrots and sticks from the United States, but policymakers should seek creativity and ambition in policy design.
The publication said that the current situation offers unmatched potential for US-India synergy across strategic alignment, economic prosperity, and democratic cause, US policymakers must take full advantage of this.
“They must also make clear that American interest in the economic relationship is not solely for the benefit of US companies, but rather for all countries wary of Chinese expansionism and aggression, including India itself,” it said.
Fifth largest economy
India is the fastest-growing trillion-dollar economy in the world and the fifth-largest overall, with a nominal GDP of US$ 2.94 trillion. India has become the fifth-largest economy in 2019, overtaking the United Kingdom and France.
According to Investopedia, India ranks third when GDP is compared in terms of purchasing power parity at US$ 11.33 trillion.
“India’s post-independence journey began as an agrarian nation; however, over the years the manufacturing and services sector has emerged strongly. Today, its service sector is the fastest-growing sector in the world, contributing to more than 60% to its economy and accounting for 28% of employment. Manufacturing remains as one of its crucial sectors and is being given due push via the governments’ initiatives, such as ‘Make in India.’ Although the contribution of its agricultural sector has declined to around 17%, it still is way higher in comparison to the western nations. The economy’s strength lies in a limited dependence on exports, high saving rates, favourable demographics, and a rising middle class,” it said.
The long-term growth perspective of the Indian economy remains positive due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and is increasing integration into the global economy.
Investopedia said that the economy slowed in 2017, due to shocks of demonetisation in 2016 and introduction of Goods and Services Tax. Nearly 60% of India’s GDP is driven by domestic private consumption and continues to remain the world’s sixth-largest consumer market.
“Apart from private consumption, India’s GDP is also triggered by government spending, investment, and exports. In 2018, India was the world’s tenth-largest importer and the nineteenth-largest exporter,” it said.
India has been a member of World Trade Organisation since January 1, 1995. It ranks 63rd on Ease of doing business index and 68th on Global Competitiveness Report. With 520-million-workers, the Indian labour force is the world’s second-largest as of 2019.
“India has one of the world’s highest number of billionaires and extreme income inequality. Since India has a vast informal economy, barely 2% of Indians pay income taxes. During the 2008 global financial crisis the economy faced mild slowdown, India undertook fiscal and monetary measures to boost growth and generate demand; in subsequent years economic growth revived.”
PPP to overtake USA
According to 2017 PricewaterhouseCoopers (PwC) report, India’s GDP at purchasing power parity could overtake that of the United States by 2050. According to World Bank, to achieve sustainable economic development India must focus on public sector reform, infrastructure, agricultural and rural development, removal of land and labour regulations, financial inclusion, spur private investment and exports, education and public health.
In 2019, India’s ten largest trading partners were USA, China, UAE, Saudi Arabia, Hong Kong, Iraq, Singapore, Germany, South Korea and Switzerland. In 2018-2019, Foreign Direct Investment (FDI) was US$ 64.4 billion with service sector, computer, and telecom industry leading.
India has Free Trade Agreement with The Association of South East Asian Nations, the South Asian Free Trade Area, Mercosur, South Korea and Japan.