Road To Success

In an era of positive economic and sustainable growth, the Indian economy faced a major setback due to pandemic. With almost 2 years of active stint with COVID-19, though the world is still getting better in terms of various disruptions; the domestic economy is ready to balance out such gaps with many short and long term measures. To bring the economy back on track, the government intends to drive a few basic pillars of growth- public spending, private investment, consumption demand and exports. The economic survey released in January this year, projected a GDP growth of 11 per cent by the end of March 2022. This growth is expected to be backed by various push reforms, eased regulations, infrastructural investment, a surge in manufacturing, and an increase in the overall consumption of the country’s population. 

Let us understand how the Indian government plans to boost the economy under the four pillars of growth:

Public Spending: Also known as capital/public expenditure, it is the money directly spent by the ruling government on various public assets like equipment, building, land, health facilities, education, etc. The new budgetary allocation for capital spending in fiscal year (FY) 2021-22 is Rs 5,54,236 crore that is up by 34.5 per cent over FY 2020-21. This is a very significant move against the backdrop of the economic slowdown. Capital expenditure is identified as a key factor that contributes to long-term economic growth and employment. Thus the creation of capital assets ensures future cash flows. So the emphasis on capital spending, attention must also be paid to the timely project delivery within the allocated budget by increased monitoring, redress mechanisms, and methods for controlling project delays.

Private Investment: Though a sharp pick-up is expected in the next year, it will still take time to reach pre-pandemic levels. Both consumer and business sentiments will act as a major force pulling the country’s growth. Union budget 2021-22 specially aims at enhancing the investment environment of the market. Schemes like PLI (production linked incentive scheme) will encourage growth in sectors like telecom, IT, mobile, etc. Easy clearances, lesser red tap and industry-friendly policies will also induce private investments.  However, this also depends on how the government promotes other factors like land, water and electricity to support the prospective investors. 

Exports: New year is expected to be backed by increased global and domestic demands with strong government-led production initiatives.  The World Trade Organisation has also predicted a 4.7 per cent expansion in global merchandise by the end of 2022. The export industry was one of the worst-hit during the COVID-19 pandemic crisis and its speedy recovery can be a determining factor to the upward growth of the domestic economy. But an export-led recovery is further dependent on many factors. Most of the export growth has been led by traditional sectors like engineering, petroleum, and gems and jewellery only. Market and sector diversification would be a key here too. Until March 2022, the government should consider providing export-led incentives. The MEIS (Merchandise Exports from India Scheme) was phased down earlier this year in favour of the Remission of Duties and Taxes on Exported Products (RoDTEP). This initiative will help to recover losses in the domestic sector. 

The Indian growth story faced a major setback due to the coronavirus pandemic. The country experienced one of the worst declines in growth rate amongst the emerging economies. Public expenditure on infrastructure, e-commerce, start-ups, technology and digital transformation will positively contribute to economic growth.  These elements are reinforced by India's more visible economic prospects, owing to its large middle class and young workforce. India also continues to remain an attractive destination for FDI investments. India is a particularly attractive place for foreign investment, thanks to extensive tax reforms and the rupee-dollar parity. In addition, India has a favourable political atmosphere that encourages and facilitates business.

Challenges in Indian Economic Recovery:

Though even with all these projections of positive economic growth for the coming year, it will also bring up some challenges for the policymakers and government. A rise in inflation would be the most obvious.  The pandemic has disrupted supply chains, resulting in a global increase in commodity prices such as raw materials, vegetable oils and manufacturing expenses, among other things. This had an effect on India as well. A lot of it would require well-thought government intervention. The Omicron concern is also looming globally. Though it is too early to comment, its impact would be far lesser as compared to the first wave in 2019. The Indian economy is already showing signs of recovery but a major boom is expected by the last three quarters of 2022. Consumption and investment are still weak at the moment, however, the government's national monetisation plan is expected to boost public investment and overall infrastructure too. The agriculture sector is expected to grow through the introduction of new technologies including rural demand. 

So it can be concluded that economic growth and recovery in post-pandemic times will involve a lot of government intervention. It is important that the government creates an environment and structure that enables various sectors to flourish. A combination of plans including but not limited to increased investment increased revenue, lower costs, encouraging innovation and workforce development can lead to sustainable economic growth.