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Indian economy v/s G7 economies

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What is Global hyperinflation?

In most of the countries, every year apropos to the increase in the wages of workers, operational cost, production cost and government taxation a small price hike will be there in the major goods and services that are being offered to the public by the governments and private bodies which is a pretty normal phenomenon and not a inflation since this will not fuss the people usually. On the other hand Global Inflation is merely a swift price rise episode in the Goods and services consumed by the Public due to an increase in demand and drop in supply for a certain period of time but what the world is going over right now is a “Global Hyperinflation” a combination of Cost Push and demand pull inflation which is an abnormal inflation.

It is nothing but a peculiar whirlwind price rise in most of the goods and services consumed by the people globally for a certain period of time. This type of Hyperinflation will bite every country’s primary currency that will eventually end up landing in a global recession. Current Global inflation rate is approximately 8.8% at the moment which is the third highest inflation rate in the last 30 yrs. The first and second global inflation rate was approximately 10.3% and 8.9% in the years 1994 and 2008 respectively. 

The root cause of Current Global hyperinflation and when was it started?

The current global inflation started in early 2020 and has reached its peak right now. While many have given different reasons for the cause of this weird global economic inflation and recession, The months-long curfew in most countries during the covid-19 pandemic at the beginning of 2020 that led to the halt of production of goods and services and disruption in supply chain between the countries, followed by the change of regime in the US presidential election at the end of 2020 and some of the economic and tax policies of the newly formed government in the US, effects of Russia-Ukraine war are being seen as major factors behind the current situation. 

The global economy was hit hard by the mandatory curfews imposed in the world countries because people were confined to their homes and many industries (Except few service industries) halted their production and distribution altogether due to the lack of workers (man power) and raw materials. Due to which the Supply-chain interrupted globally so the economy started to move downwards in all countries! The US economy plays a vital role in the world economy for the past 4 decades. A surge or slump in US economy and its monetary policies will always have effects for the rest of the countries in the world. We cannot snub and deny the highest Inflation and recession endured by the world countries between 2008 and 2009 as a consequence of the poor monetary policy decision taken at US. 

On the other hand, since 2022 February, the relentless and round the clock war between Russia and Ukraine has stimulated the supply shortage of Energy and food products being exported from Russia and Ukraine to other countries. None of the financial institutions including the International Monetary Fund (IMF), The World Trade Organization (WTO), The Organization for Economic Co-operation and Development (OECD) and the World Bank, anticipated that the world economy would collapse to this extent in 2022 because they only made economic forecasts based out of post Covid effects and did not predict the outbreak of war between Russia and Ukraine.

These are the major factors behind Global inflation at this time and it will begin to decline from the third quarter of 2023. I will write about 2022 US midterm elections and its effects on world countries as well as 2024 US election prediction (states and counties wise prediction). I will also write about why USD is going stronger against all currencies including INR e.t.c in my next articles.

Inflation in India

Most of the world countries had faced major crisis in the supply chain of goods and services during the Covid period and as a result the economies of the world countries had started shrinking and after that the outbreak of Russia-Ukraine war in early 2022 had led to the Global energy crisis and that has eventually pushed the world economy towards Global inflation but India’s inflation and economic growth is far better than other developed countries with advanced economies and developing countries with emerging market and economies. World countries have appreciated India’s sustained growth in its economy and its contribution to the world communities even after being hit hard by Covid-19 since India was one of the highly populated countries which did show 8.9% of GDP growth rate in the year 2021 with a massive annual change rate of 15.4% from the previous year (2020).

None of the world countries had recorded double digit Annual growth rate except India. If we happen to consider India’s inflation rate and economic growth over the past 3 decades, India has witnessed tremendous and sustained growth since 2015. The International Monetary Fund (IMF) appreciated India’s control over inflation and on October 2022 one of the top officials from IMF stated that “India has not remained unimpacted, but is doing better and is in a relatively bright spot compared to other countries “. The major factors behind India’s prodigious inflation control management and bright level-headed Economic growth are as follows. 

This great nation called “India” is being headed by its very own sons and daughters of the same soil (likeminded Prime minster and group of ministers and this is one of the major factors, The other factors include this government’s elegant and visionary economic policies, self reliant nation (Atmanirbhar Bharat) and Digital India Initiatives, a friendly and uncompromising strong external affairs (foreign) policies!.

Global inflation comparison Charts

Below are the comparison charts showing India’s economic growth (GDP) and inflation against advanced economies (G7 countries) and some of the emerging market economies (Developing countries). Besides my own prediction for 2023 based out of Consumer Pricing Index (CPI) and Wholesale pricing index (WPI), rest of the data given in the charts below were taken from IMF/WEO/Other online resources and follows January-December calendar year model. 

GDP Comparison (India Vs G7 countries with Advanced Economies (AE))

Look at the chart data above, India stands firm against the yearly GDP growth rate of all other G7 Advances Economies

GDP Comparison (India Vs Notable Developing Countries with Emerging Economies (EE))

Look at the chart data above, India stands firm against the yearly GDP growth rate of all other Emerging Economies

Inflation Comparison  (India Vs G7 countries with Advanced Economies (AE))

Look at the chart data above, India’s yearly Inflation rate stands lower against all other G7 Countries (advanced Economies)

Inflation Comparison (India Vs Notable Developing Countries with Emerging Economies (EE))

Look at the chart data above, India’s yearly Inflation rate stands lower against all notable developing countries with Emerging Economies

Measures taken by Indian Government to control Inflation

Ever since this present Government assumed office it has taken various Price Control, Monetary and Fiscal measures to keep the prices and inflation under control and to grow the economy. I have given below some of the major control measures that are effectively being implemented till date by the central government in the last 8 yrs to enhance the GDP (Data source: National Portal of India, RBI, Indian Finance Ministry website and other online resources).

Monetary measures

Prior to Covid-19, Considering the evolving global economic environment and to boost up India’s economic growth for a long-run competing with growing economies and advanced economies and  in order to get rid of the price rise problems in the retail market which sways livelihood of the middle and lower class people the Reserve Bank of India (RBI) Act, 1934 was amended by the central government on May 2016 as to give statutory basis for the flexible inflation targeting framework (FITF) and it also constituted a Monetary Policy Committee (MPC) on September 29 2016.

The objective of this strategy was for the central government to fix the inflation target in discussion with RBI based out of CPI (Consumer Price Index) for every 5 years and declare it in the Gazette for public access. Some of the major objectives of this FITF are, Forecasting and targeting the inflation rate for every 5 yrs, retaining the fixed inflation rate with an upper and lower tolerance band for 5 years, maintaining the price stability in retail market, reducing uncertainty in the share market, boosting the GDP Growth rate and a lot more. MPC would advise RBI in setting up the repo rate for controlling inflation rate within the target. The first 5 years inflation target for the period between 5th August 2016 and 31 March 2021 was set for 4% with the upper tolerance limit of 6% and the lower tolerance limit of 2 % by Central government on August 5 2016 and the same was declared in the Gazette.

On the 31st day of March 2021, the central government retained the same inflation target and the tolerance band for the next 5 year period starting from April 1 2021 till March 31 2026. This is the best Monetary policy strategy ever made by RBI to control the inflation rate since independence and this well defined strategy was engineered by the then Government led by Honorable Prime minister Narendra Modi in 2015 and that has saved us today from this global economic downturn. Also RBI as part of its control Measures to achieve the inflation target set forth and to promote economic growth revises the interest rates from time to time and on December 7th 2022 RBI has revised the following interest rates, CRR: 4.50% SLR: 18.00%, Repo Rate: 6.25%, Reverse Repo Rate: 3.35% Bank Rate 6.50% Marginal Standing Facility Rate: 6.50%. Standing Deposit Facility rate: 6.00%.

Fiscal measures

Since 2014, with the effective implementation of fiscal policy measures till date, India has been maintaining its fiscal deficit margin of around 4% of total GDP but in the FY 2020-2021 the deficit went up to 9.5% due to the impact of covid-19 and the government had to increase the current expenditures to Compensate and protect the people from this Covid-19 disaster but in the FY 2021-2022 the deficit did shrink to 6.7% of the total GDP which is 0.2% lower than the projected deficit rate by the Finance Ministry itself due to the higher tax receipts and thrifty current expenditures as part of the decisions taken by the Central Government wisely on Monetary and fiscal policies. 

For the FY 2022-2023, despite the fact that total expenditure will remain around 4.9% and of which the capital expenditures will remain between 2.8% and 2.9% The central Government has targeted the actual GDP growth rate between 7.1% and 7.8% with the deficit of 6.5% of the total GDP and has also planned to lower the deficit further to 4.5% by FY 2025-2026. On December 6th 2022, The World Bank upgraded GDP growth forecast for India to 6.9% for FY 2022-23 from 6.5% that it was projected In October 2022 stating that the Indian economy was showing higher resilience to Global Shocks and has shown extraordinary output numbers in the second quarter of FY 2022 -2023.

Price Control 

1. The Central government slashed an excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. The government also proclaimed that it    will bear a deficit of approximately Rs 1 lakh crore an year owing to the excise duty reduction on petrol and diesel. Honorable Central finance minister Smt. Nirmala Sitharaman consistently insisted that all states should implement this excise tax cut as this would benefit the people.

2. The central Government slashed the import duty on coal from 2.5% to 0% and waived of the import duty on essentials raw materials and intermediaries for the steel and plastic industries On the other hand hiked the export duty up to 50% for few steel products, Iron ore and concentrates to surge their availability.

3. The Central Government announced a subsidy of RS 200 per Gas Cylinder (To a maximum of 12 cylinders an year) to the deprived class families enrolled under Pradhan Mantri Ujjwala Yojana’ (PMUY). This announcement financially helps around 9 crs beneficiaries till date.

4. The central Government exempted the Customs duty and agriculture development cess on imports of 20 lakh metric tonnes of crude soyabean and crude sunflower oil on yearly basis and this will remain in effect till 2024 March 31st.

5. The Central government has set a limit of around 60 lakh tonnes on sugar exports effective from November 1, 2022 till May 31, 2023 as to ensure the availability of Sugar stock for the domestic utilization in the markets at a fair price during the sugar season. 

6. The Central Government has also taken measures to control the price of Cement and surge its availability.

7. India Banned all types of wheat exports effective from May 2022 until further notice due to domestic food security concerns and to curb wheat price in the domestic market but allowed the wheat exports to neighboring and vulnerable countries that demand through their respective governments for their food security needs. 

8. As part of the Inflation and price control measures for the FY 2022-2023, the central Government has announced an additional Fertilizer subsidy of 1.10 lakh crore to farmers as to protect them from the Global price rise in fertilizers besides the regular subsidy of 1.05 lakh crore being given to them currently and on the whole 2.15 cr fertilizer subsidy is being given to the Farmers by the Central Government.

How does India survive in this Global inflation

India was doing a whole lot better during the Covid-19 pandemic time in the year 2020 (First wave) and 2021 (second wave) with an effective Pandemic and economic management framework through a win-win strategy and that saved a lot of lives and the livelihood of the people as well as economy. India shown a V-shaped recovery and bounced back with an 8.9% of GDP growth rate in the year 2021. Being said, most of the world countries were drastically affected by Covid-19 in 2020 and 2021 that led the world to encounter economic crisis hence the recession started in 2022 but the Indian government headed by Hon’ble Narendra Modi anticipated that the global economic downturn, Inflation and recession will endure in 2022 owing to the impact of Covid-19 worldwide in the fourth quarter of 2020 itself.

The prime minister also said that his government is not only to secure lives and livelihood from this pandemic but also to ward off the country from facing a huge economic downturn and inflation like other countries. In January 2021 Hon’ble Finance Minister Nirmala Sitaraman said that the central government adopts a unique four pillar strategy of containment, fiscal, financial and long term structural reforms to control inflation and amplify the Economic growth. Calibrated fiscal and monetary support was given to mitigate the needy people during the lockdown and to uplift consumption and investment at the time of unlocking. 

As a result of such a visionary planning by the central government, India’s economic growth is currently retained at 6.9% which is around 50% greater than the economies of other G7 countries and developing countries. To lower the inflation and augment the GDP growth rate further for the FY 2022-2023, Central government has taken several innovative control measures. It has also imposed some restrictions on the export of essential goods as to ensure that there are no shortfalls in the domestic market and to control the price raise. 

Besides the monetary, fiscal and price control measures taken to top and pile up the economy, GDP growth rate and to maintain the inflation rate between 2% and 4% several reforms were introduced under Aatmanirbhar Bharat Abhiyan (self-Reliant India) in 2021 for Manufacturing and service sectors since these two sectors drives economic growth, employment, revenue and livelihood of the people. The Production Linked Incentive (PLI) Scheme which was introduced in FY 2020-2021 to cover vital sectors like electronics manufacturing, medical devices, pharmaceuticals, food products, Telecom, solar EV modules, automobile and auto components, Specialty Steel, ACC battery, textile products, White goods (ACs and LED) for attaining Aatmanirbhar Bharat Abhiyan has received investment intentions worth of Rs 30 lakh crore and this would heighten the GDP growth thus by creating more domestic employment opportunities.

PLI is expected to create around 60 lakh job opportunities by the end of March 2023. The central Government also announced an extension of Emergency Credit Line Guarantee Scheme (ECLG) till March 2023 for small businesses coming under MSME so as to enhance their production. This measure has helped almost 12 million small businesses to cushion their revenue deficit incurred due to the impact of this pandemic till date. 

While controlling the inflation, on the other hand the Government does focus on people’s welfare schemes in an uncompromised way, around Rs 60,000 crore was allocated for providing access to tap water for approximately 3.8 crore households, Rs 44,605 crore was allotted for Ken-Betwa River Linking project to provide irrigation to approximately 9.05 lakh hectares of farm land and drinking water for 6 million people. Under PM Gati Shakthi scheme Central government allocated Rs. 1 lakh crore as 50-year interest free loans to the states for the FY 2022-2023 to assist in attracting investments to boost up the GDP which is above the usual borrowings allowed for states.

What would have resulted if Central Government did not take any control measures?

During the Covid-19 pandemic period (2020) and post covid period (2021- till date) if this present government being headed by the strong progressive thinker, visionary leader Honorable Prime minister Shri Narendra Modi and his group of ministers was not in reign a country like India with a population of over 130 crores would have suffered a huge number of catastrophic fatalities and causalities and beyond that the economy would have gone to the bottom. Even countries like Italy, England and Canada with a population between 6 and 7 crores were unable to control the outspread of this pandemic and the causalities arising out of it as well as their very own sinking economies. 

Formulating and constituting variety of schemes, laws and policies for the people is not a big deal, whoever assumes power can make it but implementing and administering them successfully among the people for their betterment can only be done by a strong leader. It is the need of the hour too. The world countries greatly appreciated and admired the Indian Government for its Initiatives, dynamism and technical handling of this pandemic because India has not only handled the pandemic effectively and abated the fatality rate but also revived the economy and showed an annual growth of about 15.4% in 2021 that did set an example for all other countries.

India also embarked on the task of preparing a vaccine for Corona and India was the very first country which offered the vaccine to its citizens free of cost besides exporting the surplus to other countries in the same year. All these were possible only because of the present central Government led by likeminded nationalists.

Written by

Adv. Kamal Kumaraswami Mudaliar

Avocate (Madras Highcourt)

E: [email protected]

M: +919444749388

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