19-02-2013, 03:46 PM
INDIAN ECONOMY HOLDS OUT DESPITE GLOBAL UNCERTAINTY
ABSTRACT
The big story of the last decade for India has been its arrival on the global scene and
there was no looking back from the first years of the first decade of the 21st Century. The
Economic Survey 2011-12 tabled by the Finance Minister, Shri Pranab Mukherjee in the Lok
Sabha today outlined the state of global economy and India’s position therein. The Survey
has charted out not only the new opportunities but also the new challenges and
responsibilities that India faces in the current global economic scenario.
The Survey observes that, as per the IMF, at a growth rate of 7 per cent, India is
projected to be the second fastest growing major economy after China. The share of India in
global merchandise exports has increased from about 0.5 per cent in 1990 to 1.5 per cent in
2010. Moreover, the extent of financial integration, measured by flows of capital as a share of
GDP has also increased dramatically and the role of India in the World Economy has
commensurately expanded along with the other major members of emerging markets, which
as a whole now account for one-half of world output.
The Economic Survey states that after the opening of the economy in the early 1990s,
India has begun to appear as a player of significance in the global economy. The country’s
exports have begun to climb, its foreign exchange reserves, which for decades had hovered
around 5 billion dollars, have gone up exponentially after the economic reforms and in little
more than a decade have risen to 300 billion dollars. Indian corporations that rarely ventured
out of India are suddenly investing all over the world and some even in the industrialized
countries.
Given its size and its profile in the global economy, India will inevitably need to play
an active role at global level, not just in the efforts towards resolving the current crisis but
also in influencing the goals for the global economy on overarching macroeconomic issues
such as trade, capital flows, financial regulation, climate change and governance of global
financial institutions. India, the Survey points out, is already too much a part of global
economy and polity and the developments in the world will affect India deeply and what
India does will affect the world. Therefore, the Survey advises, there is a need for India to
engage with the world in terms of action and ideas.
Reflecting upon the state of global economy, the Economy Survey states that there is
an apprehension that the process of global economic recovery that began after the financial
crisis of 2008 is beginning to stall and the sovereign debt crisis in the Euro zone area may
persist for a while. The lower global growth forecast by the IMF for most countries in 2012
reflects the repeated bouts of uncertainty. In the medium term, challenges for the global
economy continue to emanate from the way the Euro zone crisis is addressed. The high
deficits and debts in Japan and the US and slow growth in high income countries in general,
have not been resolved. The looming risk to the global outlook is also on account of the geopolitical
tensions centered on Iran that could disrupt oil supply and result in a sharp increase
in oil prices and even disrupt supply routes.
Volatility in capital flows resulting from the spillover affects of monetary policy
choices and other uncertainties in the advanced financial markets further impacted exchange
rates and made the task of macro-economic management difficult in many emerging
economies. This has brought out a new dimension of globalization in the post-financial crisis
world, where easy monetary policy in one set of countries may result in inflation elsewhere
due to cross-border capital flows.
The changes in composition of the global economy suggest a perceptible shift in the
global balance of output of goods, especially manufacturing. While services, in particular
financial services, continue to be largely concentrated in advanced economies, a large share
in world population, coupled with higher growth, implies that the EMEs (Emerging Market
Economies) and developing countries will increasingly account for incremental growth in the
global market for goods and services. Even if the emerging economies, including India,
witnessed a slow growth in 2011, growth prospects of most of these economies remain robust
in the medium to long run due to various factors such as demographics and size of the
domestic market, apart from high rates of investment and savings.
While stating that India has begun to be a more open economy over the years and has
moved up the ranks, the Economic Survey observes that it is still poorest among the G-20.
While the country has an advantageous demographic dividend, its low spend on Research and
Development and innovation, low energy intensity of GDP, 80 per cent dependence on
imports for petroleum products, dependence on global markets for food security and a need
for sustained investment are some of the areas which will have to be addressed for the
country to emerge as a Strong Global Player.