Receding Horizons

THERE IS SOME good news for the Indian economy in an otherwise difficult situation. The International Monetary Fund (IMF) has maintained its forecast of 7.3 per cent growth for India in 2018-19 and projected that figure at 7.4 per cent for 2019-20. The country remains one of the fastest growing economies in the world.

These numbers come amidst a gloomy global scenario. The IMF has kept its growth forecast for the world at 3.7 per cent in 2018-19 and 2019-20. These figures should be seen against the backdrop of a trade war between the US and China which has the potential to hurt global growth as collateral damage. For countries like India, the dangers are clear. On one hand, the country’s trade performance has been tepid for a while. This is not surprising. Over the years, export markets have increasingly been held hostage to protectionist tendencies. On the other hand, a big rise in oil prices within a span of six months has made the task of managing the economy difficult. Trade volumes—both exports and imports—have played a major role in India’s growth ever since the economy was liberalised in 1991. Once tariff walls rise, as they currently are across the world, it is only a matter of time before growth takes a hit.

What helps India, in a perverse sort of way, is that it never embraced the ‘Washington Consensus’ in an instrumental manner. As compared to many debt-ridden countries that were forced to prise open their economies after 1991, India never shut its doors on the public sector, for example. The ‘mixed’ path had its costs, of course, as weak and inefficient Public Sector Undertakings had to be subsidised via the Union Budget. Labour reforms were never carried out while there was a window of opportunity. The results are visible: loss-making state-run enterprises like Air India are now a deadweight on the exchequer.

But there is a silver lining in all this. As the world emerges into a new age of nationalism, reliance on domestic markets for growth and the use of the public sector for imparting economic stimuli may be the order of the day. This is not to say that there is a clear case for such state-led intervention in the economy, but in case the world does recede behind protectionist walls, such tools remain available to the country. Hopefully matters won’t come to such a pass. Ideally, India should push for liberalisation and free trade.

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