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Chaitanya Kalbag

The author is former Editor, Reuters Asia, Editor-in-Chief of The Hindustan Times, and Editor of Business Today

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Feelin’ Good

Optimism is good for everyone, but let’s not be foolhardy


It is good that we are feeling bucked up at the beginning of 2018.  Major economies expect growth in tandem for the first time since the global financial crisis of 2008.  World trade is seen growing at a decent clip after two slow years. Commodity prices are firming up — although there is the matter of hardening crude prices that could inflate India’s current-account deficit.

The heaviest snowfall in more than 60 years in the Swiss Alps added zest to the hyperbole at Davos. Few people wanted to remember that 2018 marks the centenary of the end of the First World War.

Indian media breathlessly reported that the International Monetary Fund (IMF) had ‘raised’ India’s growth projections to 7.4 per cent in 2018 and 7.8 per cent in 2019 on the eve of the World Economic Forum (WEF) in Davos.  But the projections were three months old — the IMF was merely updating its October 2017 World Economic Outlook for advanced economies. The outlook for emerging markets and developing economies was unchanged. If our economy grows at the predicted pace, we will indeed be the fastest-growing economy again this year.  Does that mean we will have climbed the next hill from the Lower Middle Income valley? Not likely.
IMF Managing Director Christine Lagarde warned against complacency. Higher growth is cyclical and needs to be backed by fundamental reforms; lower interest rates have fuelled a debt overhang; and too many people, especially in developing markets, are being marginalised.

Income inequality has risen dramatically, an Oxfam survey said just before Prime Minister Narendra Modi made his Davos pitch, peppered with quotations from our scriptures that underline India’s inclusiveness. The WEF says its Inclusive Development Index (IDI) reflects the criteria by which people evaluate their countries’ economic progress more closely than GDP.

In its 2018 rankings of 103 countries, divided into advanced and emerging economies, India came in at a poor 62 among 74 emerging nations with an IDI score of 3.09 on a 1-7 scale where 1 equals the worst and 7 the best. Among BRICS economies, Russia (19) is ahead of China (26); Brazil is at 37, and only South Africa fared worse than India at 69.

If you drill down into the numbers, India did badly on Education and Skills (25th among 34 peer nations), Health (25/37), and excelled on Corruption and Rents (1/37).

There is a fierce debate underway on whether or not the Modi government is creating jobs.  The prime minister argues that every small business, helped by easy loans, represents at least one new job. But the WEF survey gives India a middling score on Asset Building and Entrepreneurship (21/37) and a poor 33/37 on small business ownership. India ranks a dismal 36/37 on wage and non-wage compensation.

At the social level, India is doing well in continuing to lift more of its citizens out of abject poverty. How are we doing on political risk? Nationalism and protectionism fuelled by short-term populism could upend the tentative economic turnaround.  Global risks include cyber-warfare and a potential military showdown between the United States and North Korea.  Tell that to foreign institutional investors, who pumped in a net Rs 8,500 crore into Indian equities between January 1 and 24 after pulling a net Rs 67,000 crore out between August and December.  They see hope.

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