The double whammy of the devastating impact of more than two years long Covid-19 pandemic on the one hand and then the Ukraine conflict on the other, has left the world economy in a perilous state.
In the US, inflation is the highest since 1981 (8.6% in May 2022), fuel prices have shot up by 106% YoY, shelter costs have risen the highest in 31 years and real wages have declined by more than 3% in May 2022 YoY.
In the Euro area, annual inflation is 8.1% in May 2022, up from 7.4% from April. Out of this, energy inflation is 39.2% while food is at 7.5%. In the UK, inflation is at a 40 year high of 9% YoY in April 2022.
How does India fare in the economic sphere? Inflation in May 2022 moderated to 7.04% YoY as compared to 7.79% in April. This may look relatively high, but unlike the US or Europe, this is not a four-decade record.
India’s RBI has mandated an inflation target of approximately between 4% to 6.% and has had a very successful record of managing inflation within this range.
In that sense, India’s inflation has not risen as dramatically as it has happened in the US (0.1% in May 2020, 1.6% in March 2021) and Europe (1.6% in April 2021).
Modi magic at work
The prudent economic decisions made by Prime Minister Modi government has in large part contributed to this rather successful economic management.
As the pandemic hit, much of the developed world, led by US and Europe, thought that printing money and distributing it indiscriminately would buy their way-out of trouble.
This was against all economic wisdom and past precedents. And yet, the West persisted. Many star economists put immense pressure on India to follow track with the logic that if the West is doing it then why think?
The Modi government however resisted such pressures and instead focused on targeted welfare delivery such as free rations to over 800 million people and direct transfer of cash in the accounts of the really needy.
The result — while the developed world is staring at recession, India is today the fastest growing major economy in the world having closed FY 2021-22 (April to March) at 8.7%, with moderate inflation and is projected to grow in the range of 8.5% to 9.5% for next three years.
But managing inflation while still growing at the fastest pace is not the only story coming out from India. Consider some other economic news that has come out in recent weeks.
India attracted the highest ever Foreign Direct Investment in 2021-22 with over $83.5 billion flowing in.
The country has now over 100 unicorns, 17 of them created in 2022 alone. This is after over 40 plus unicorns emerging in 2021, the same year when India bore the brunt of the pandemic.
In terms of attracting global VC funding, Bengaluru based companies are now the most preferred destination outside of US and UK. In first half of 2022, just Bengaluru attracted over $7.5 billion of VC funding for Start-ups.
India’s Agnipath policy
Unemployment, despite two years of pandemic, has dropped significantly. As per the latest Periodic Labour Force Survey (PLFS), unemployment in 2020-21 was 4.2% as compared to 4.8% in the previous year. This despite much all of 2020-21 being a pandemic year.
In Global Competitive Index, India has improved its rankings from 43 to 37. Compare this to the low of 71 in 2014 when Modi assumed office as Prime Minister.
India has just announced that in the next 1.5 years, it would fill all pending vacancies in central government jobs. This move alone would create more than a million direct jobs in the central government.
State governments are similarly following suit and they would combined create additional few million direct jobs themselves. The multiplier effect in creating indirect jobs would also be in millions.
The Indian Military has just announced a brand-new recruitment policy called Agnipath. Every year, thousands (in present year over 44,000 youth) of youths between ages 17.5 to 21 would be recruited into the military for a 4-year commission after which 25% would be retained while rest would be discharged with well trained skills and a corpus of over a million rupees in hand.
This scheme would thus not only make the Indian military younger but will also generate employment. The scheme would skill the youth and place them in the job market with corpus in hand, thereby creating a new class of skilled youth who may go on to become skilled entrepreneurs or enter the job market better skilled and trained.
A model of managing economy
Overall, as the world faces turbulence in food supplies, energy supplies and record inflation, India presents a model of managing the economy better than almost any other country and that too within a democratic free and open society structure.
India is exporting food supplies (wheat) to countries that need it the most; is emerging as the destination for foreign capital for both high end technology Start-ups as well traditional manufacturing and supply chain (attracted by hugely successful PLI schemes).
Given the size of Indian economy (almost $3 trillion), controlled inflation, high growth rate (over 8.5%) and controlled unemployment, India is set to be the driver of growth of world economy in the coming few years. Quite a contrast from the last time when the world faced an economic crisis!
The difference from the last time — now: Prime Minister Narendra Modi is at the helm.