Thirty years ago, on a late-summer evening in late July, India liberalised its Soviet-style economy, ushering in a shift that lifted 300 million people out of poverty and fueled one of the world’s largest wealth booms. Then came the world’s fastest coronavirus outbreak, which resulted in overcrowded hospitals turning away the dead and city skies darkened by cremation smoke. Years, if not decades, of progress have been undone in a matter of months, as many Indians who had worked their way out of poverty now face bleak career prospects and are saddled with massive debts incurred to get themselves and their loved ones through the pandemic.
According to the Bangalore-based Azim Premji University, more over 200 million people have returned to working for less than minimum wage, or $5 a day. According to the Pew Research Institute, the middle class, which drives the consumer sector, fell by 32 million in 2020. As a result, India will be regressing on key fronts at a time when its global relevance is increasing. India is poised to overtake China as the world’s most populous country this decade, grabbing the reins from China, which has long been the engine of global growth. However, even as it attracts the kind of young, working-age population that has fueled long-term booms in other countries, the Indian economy faces significant challenges.
“We’re talking about a decade of missed opportunities and setbacks,” said Arvind Subramanian, a Brown University fellow and former main economic counselor to Prime Minister Narendra Modi. “You won’t get anywhere near what we witnessed during the boom years unless there are some major reforms and fundamental changes in the way economic policy is implemented. To return to the 7% to 8% growth rate that we drew, a lot of things must happen “”Desperately required.”Cracks had begun to appear even before the pandemic. PM Modi was elected in 2014 amid voter dissatisfaction with scandals and policy paralysis that had contributed to bank failures and threatened to derail India’s economic development. However, the economy has encountered other challenges in recent years, including Prime Minister Modi’s 2016 cash ban, which roiled the informal sector, and a hastily enacted new tax structure.
Prime Minister Narendra Modi had promised to build India into a $5 trillion economy by 2025, but the pandemic is expected to push that date back several years. The International Monetary Fund anticipates India will grow 6.9% in the next fiscal year, which begins in April 2022, which is lower than the more than 8% needed in the long run to meet PM Modi’s lofty goal of creating jobs for the millions of people joining the labour force.
While serving as a top Goldman Sachs Group Inc. economist, Jim O’Neill, chairman of Chatham House in London, coined the term BRICs to describe the emerging markets of Brazil, Russia, India, and China, he is cautious on India these days, largely because the government hasn’t made many of the long-term structural changes he believes are needed for it to reach its full potential.
A government official did not respond to a request for comment, but Prime Minister Narendra Modi’s administration has acknowledged the need for longer-term adjustments in recent weeks. “We have to think about not only a present resurgence if we are going to restore growth – of 8% -10% – back on a sustainable path,” Sanjeev Sanyal, the government’s top economic adviser, said at the India Global Forum on June 30.
After a strict statewide lockdown, India’s once-fastest-growing major economy had its largest-ever downturn last year, dropping more than 7%. Another wave of diseases rocked the country just as the economy began to show signs of life. The central bank anticipates India to expand at 9.5 percent this year, well below the double-digit comeback that many had predicted. He is the one who made that assessment.