The IMF has cut India’s FY23 growth forecast by 60 bps to 6.8% and that actually takes it below the RBI forecast. Do you agree?
The IMF is pretty clear and most observers will also agree that the reduction in the forecast and our perspective growth is entirely because of reduced demand. As the whole world is going into a recession, certainly demand will be affected, even though the rupee has been depreciated and normally that should give export some advantage.
The fact is that when there is no demand or very little demand externally, that will not help push export benefits of a cheaper currency. Therefore Indian growth will also come down. The only consolation that we can take perhaps is that unlike much of the world, we will not be technically in a recession but that does not help very much when we are also home to the largest number of people below the poverty line in any country in the world.
Do you think the Reserve Bank here in India has done a better job or do you think we have come late to controlling the rising prices too?
Compared to what the inflation in the US is – way above the target of 2% – we are not that badly off. Perhaps, we have to caveat that with the fact that inflation hurts the poor most of all and food inflation in India has been one of the driving forces for this high inflation.
So not only has inflation hurt the poor the most, when we have a high amount of inflation, it is adding insult to injury to the poor. So I would say that yes, RBI has been better than other central banks, notably in terms of keeping it not too much above the inflation targeting range. However, food inflation and inflation hurt the poor the most and India is home to the largest number of poor.
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I can perhaps add some most worrisome predictions as far as India and the IMF is concerned. The IMF predicted that India’s current account deficit will be 3.5% and that is way over the danger mark of 3% and well above what the RBI predicts. RBI has been predicting that the current account deficit will be within manageable proportions. I think that is a particular note of worry even though our growth at 6.8% does not look too bad compared to other countries.
So current account deficit seems to be a bigger worry area. What about the job market? Do you reckon that 2023 is going to see the kind of layoffs or limited career opportunities like we experienced through the pandemic years of 2020 and 2021?
India has been experiencing jobless growth over the past many years and this is not a recent phenomenon. Whatever growth opportunities have been there, has largely been restricted to the most skilled section of the population. The growth in the services sector has been pretty strong and that comes from employing skilled people.
The manufacturing sector is perhaps one which can give productive jobs to people who are less skilled that we have now seen growth happening. Agriculture is where productivity is very low and that continues to host a large number of people. That really is our biggest worry but unless manufacturing picks up, we are not going to be able to deliver the kind of jobs that our people deserve. Of course we have issues of skilling our population that is another story.