While India’s economy is gradually recovering from the shocks delivered by the Covid-19 pandemic, experts feel the growth is lopsided.
Former World Bank Chief Economist Kaushik Basu said India’s overall macroeconomic situation is in recovery mode, but expressed concern that growth is concentrated at the top end.
He said “the bottom half of India” is in recession and lamented the country’s policy over the last few years has been largely focused on big businesses.
He said rising inflation, high unemployment and falling per capita income were pushing the country toward stagflation. The current situation in India is a big challenge to Finance Minister Nirmala Sitharaman and the entire fiscal policy apparatus, he added.
Another area of concern is the youth unemployment rate, which at 23% is among the highest globally, even before the Covid-19 pandemic started. Workers, farmers and small businesses are seeing negative growth, he added.
Basu said he felt that “very carefully curated policy interventions” were required to address the situation. He suggested the aim should be to direct money into the hands of the poor and even some of the middle classes.
At the same time, there should be a simultaneous increase in output, a strengthening of infrastructure and an easing of supply bottlenecks, he added.
As for the projected 9.2% GDP growth for 2021-22, Basu said since this comes after a contraction of 7.3% in 2019-20, the average growth rate over the last two years is 0.6% per annum. India had suffered its first full-year contraction in 2019-20, on account of the pandemic and strict lockdowns to contain its spread.
Basu is a professor of Economics at Cornell University in the United States. He also served as Chief Economic Advisor to the Indian government during the previous United Progressive Alliance regime headed by Manmohan Singh.
Former Reserve Bank of India governor Raghuram Rajan said the Indian economy has bright as well as dark spots. In an interview with the Economic Times, he said the export industry was doing well and India’s IT industry was upbeat as global demand is on the rise. Industries targeting the rich are also doing well owing to pent-up demand.
But the high contact service industry and the lower middle class are going through a very tough time. The number of people employed in agriculture has increased, and it only shows that jobs in cities have come down and these workers have been forced to take jobs in the agriculture sector.
India has a real consumption problem and it has hit those in the lower end of society. Ignoring them will be at our peril, he said.
Rajan’s predecessor at the central bank, Duvvuri Subbarao, also forecast uneven growth. He said the Indian economy’s recovery was likely to be ‘K’ rather than ‘V’ shaped. He warned that the country’s rising inequality could affect its consumption and growth prospects.