What Can (Realistically) Help the Indian Economy Now? |
Earlier this month, the Union finance minister, Nirmala Sitharaman, stated that India’s domestic economic situation remains positive and resilient even today. The RBI also held the repo rate unchanged and flagged India’s resilience in spite of the supply shock. But both were worried about outflow of foreign capital from India and announced steps to stem it.
The FM was visibly worried when she said, naysayers are creating a “cynical narrative” about the Indian economy by “fear-mongering”. This was not targeting the opposition or the economists in the middle but aimed at those sympathetic to the government who called India a ‘fragile economy’. These economists listed the steady decline of the rupee, persisting current account deficit, withdrawal of foreign capital from India, rising level of inflation and declining economic growth.
US President Donald Trump, realising that the continued closure of the Strait of Hormuz was about to trigger a big global shock, agreed to the talks with Iran. The extended disruption cost the global market an estimated 1.15 billion barrels of supply so that the US emergency reserves hit a 43-year low. The talks would ease some of the pressures on India. Additionally, will the steps taken by the RBI and the finance ministry help address the loss of confidence in India which was causing capital to go out of the country, even before the attack on Iran by the US and Israel?
Rising prices of essentials, shortage of gas for cooking and reduction in employment have adversely impacted the marginalised sections. There has been migration from cities to villages and protests by farmers and workers. The impact of energy shortage could have been minimised through a strategy ensuring the continued production of essentials (like, food and clothing) while letting the production of non-essentials (like, jewellery) decline. Unfortunately such steps were not taken.
Illustration: Pariplab Chakraborty.
The ‘free markets’ economists referred to by the FM do not have faith in such government interventions. They believe that markets will take care of economic problems. Therefore, the government and the RBI should not intervene. For instance, if the........