In the ensuing humanitarian and economic crisis of COVID-19 that engulfed the world, governments followed two approaches to dealing with the situation. One course was to give people money to augment consumption and thereby help lift a sagging market. Many countries pumped in enormous liquidity where the combined increase in the Feds, ECB, and the Japanese Central Bank balance sheets was nine trillion US$. That led to a sugar-rush growth but plunged many economies into unprecedented inflation, which is bound to remain for a while as pushing liquidity up is easier than trying to take it out. The process is generally painful, explained Minister Vaishnaw. India differed in that sense.
India, on the contrary, adopted a pragmatic approach. Given that every economy has fiscal constraints of limited capital, India chose to use its money wisely, demonstrating PM Modi’s pragmatism. According to Minister Vaishnaw, Prime Minister Modi followed an approach of limited and focused consumption targeting the most vulnerable groups in the country.
What was PM Modi’s focused consumption? PM Modi deferred from the rest of the world by selectively spending India’s capital on focused consumption and support to the most vulnerable groups, which included 800 million people receiving aid in the form of wheat, rice, or similar products and another 320 million receiving financial assistance. The program, executed through an existing network of more than 500,000 fair-price shops, local governments, self-help groups, and citizen-oriented organizations to distribute food, is continuing into its third year. The food aid program had multiple benefits preventing starvation and people from falling into poverty while it helped the government to revive the economy and continue its targeted growth program. Modi’s welfare program extended to providing vaccine access to vulnerable groups, providing 1.4 billion doses of free vaccine in the first 14 months of the pandemic, a feat executed in its entirety on a digital platform.
The most important outcome of PM Modi’s decision-making was that he could push the entire country’s capital into infrastructure expansion with limited and focused consumption focusing on vulnerable people.
That included the development of railways (a CAPEX of US$ 23 billion in FY22, reaching US$26 billion at the end of FY23), highway, and power transmission projects. The payback of investing the country’s capital in infrastructure expansion increases the country’s productivity leading to an improvement in the long- term growth potential of the country. That strategy has also led to employment generation with the monthly addition of 1.5 million jobs in the formal sector. The PM’s pragmatic approaches have led to a consistent growth path of six to eight percent annually for several years. India has managed to keep a moderate inflationary rate of five to seven percent as a large part of its energy requirements is imported. The country is experiencing a reasonable inflationary rate of 5.9 percent. Amid the enormous global challenges, the pandemic and its fallout being the most significant, PM Modi’s practical decisions have shaped India’s destiny in the last few years, helping it to maintain high growth momentum and moderate inflation.
India’s COVID-19 pandemic story demonstrates its political strength to withstand the pressure to seek recourse externally. Led by robust leadership and government, the administration believed in its industries to rise to thatoccasion. The administration believed in the ability of its industries to fulfill a domestic need.
Fiscal Consolidation is a Critical Priority in the Future
A critical future trajectory for the Indian Government is to sustain the growth momentum while restoring fiscal consolidation, according to analysts. As recently as December 2022, the IMF had warned that India’s debt-to-GDP ratio, which tipped at 89 percent in 2021, would remain high in the medium term. However, echoing the government sentiment of its commitment to reduce the fiscal deficit, Minister Vaishnaw pointed out that gradual fiscal consolidation has remained integral for the administration. A critical factor in PM Modi’s decision-making framework is ensuring that monetary and fiscal policy work in tandem. There is no compulsion upon the Indian Central Bank to resort to drastic interest rate reductions or exponential or sudden rises. A very moderate and balanced view of the ground
realities helped the Central Bank of India maintain a positive balance sheet of the central government. The central government’s liabilities are only 52 percent of the GDP, with a very positive nominal GDP growth of 12 percent, which the Minister said the government sees as a very positive situation to be in now. While fiscal consolidation is a priority, the government considers growth and moderate inflation as the primary driver of decision-making. The government has shown signs of returning to fiscal consolidation in its 2022/2023 budget to combine the monetary and fiscal policy to create the needed momentum for the next ten years while focusing on the expansion of infrastructure to support its ambitious path to long-term growth.
Leveraging the Three Global Transitions – Becoming a Resilient Player in Collective Supply Chains
India, like every other country in the world, developed and developing, is on the cusp of three monumental changes, which are digital, energy, and supply chain transition. According to Tata Chairman and B20 chair Natarajan Chandrasekaran, India is in a unique position to make those transitions. Second, he said India has ably demonstrated its tech transition in the past three years. India’s gargantuan tech sector positions itself uniquely at the forefront of digital evolution.
It has a vast talent pool and churns out the world’s highest number of tech graduates. Third, in the last decade, India has demonstrated its ability to leverage technology for development projects and public service delivery at scale, exemplified by how the state handled the COVID-19 crisis at best. He said that he sees this enormous transition as a transition in attitudes. A change in mindset. He explained that when countries opted to purchase Pfizer or Moderna COVID-19 vaccines when India of the past would have run helter-skelter to do the same, at the pandemic’s peak, the country had the mettle to develop its vaccine on its own. With the expansion of large-scale digital transformation projects, that attitude has placed India on a solid footing.
India is also well placed in stimulating the route to make the energy transition, as pointed out by Chandrasekaran, the only nation of scale where two-thirds of its growth in the next 25 years is going to come. The energy per capita is the lowest in the world.
As India is poised to increase energy consumption in the future, India is creating new energy sources for development. Growth fixes every problem, said Chandrasekaran who emphasized that the three priorities should be growth, growth, and growth. India has a tremendous opportunity, more than any other nation, to make that transition.
Given that geopolitical dynamics are reshaping globalization and as countries look to diversify their businesses to alternative destinations other than China through the China-Plus-One strategy, there is much rumbling on India pushing to become the ideal alternative. However, Chandrasekaran, who has spoken earlier on the idea of an “India Plus” opportunity in every industry, pointed out that India’s story should not be about replacing somebody else. The world is looking for resilience. Resilience has to take precedence over efficiency. In the last 50 years, he said India has driven efficiency beyond belief, which needs to stop. India now needs to become effective first and, secondly, efficient. India Plus is about India taking the lead to build resilient supply chains for every industry.
However, Chandrasekaran pointed out that while India needs to build resilient supply chains, the operation itself is not a “lone” game. It’s an ecosystem that collaborates transparently with countries and companies willing to work with India. For Chandrasekaran, India Plus is about India taking the lead to build the ecosystem to become an alternate resilient supply chain for the world. It is a status and more than just replacing somebody else.