It’s Yagna & Sadhana
Economic Survey for 2024 – 25 pushes for deregulation and reforms as sure shot prescription for higher economic growth, resilience, employment, lower business costs amid global uncertainties. V. Anantha Nageswaran It will be over six months since the last Economic Survey when you lay your hands and cast your eyes on this document and this preface. In theory, there should not be much to write in this preface, given the short time lapse since the last Survey. In reality, there is. The world is perhaps evolving more rapidly than we realise. In the longer span of history, this is par for the course. But, we will leave that contemplation for another occasion. 2024 was a year of elections. Three big democracies went in for elections: India, America, and Indonesia. India returned the incumbent to office for a third term. The ruling party continued in Indonesia with a different leader at the helm. In America, there was a change in the presidency. The new President has been in office for less than two weeks now. The world has had an early inkling of policy changes that will affect the global movement of goods and labour. Europe faces both political and economic uncertainties. Europe’s biggest economic engine, Germany, experienced economic contraction for two successive years. Political uncertainty, too, is a factor since elections are due to be held in February this year. France has had political uncertainty due to developments in the wake of the snap elections called there. The United Kingdom had a change of government. After a long gap, the Labour Party came into office amidst fiscal pressures and a slowing economy. In general, Europe is facing competitiveness pressures amidst much higher energy costs caused, in part, by the transition towards renewable energy. To a large extent, these developments have affected the global economy. The Index of Global Economic Activity of the Federal Reserve Bank of Dallas has been volatile since the pandemic began slowing at the end of 2023. The reopening of the Chinese economy after the Covid shutdown has not led to a spurt in economic growth rate as overcapacity and financial strains in the real estate sector have come to the fore. Due to weak aggregate demand, the economy is in deflationary mode. The absence of a significant policy stimulus to boost domestic consumption has seen excess capacity spill over into external markets. Chinese exports are thriving. China’s trade surplus in 2024 was nearly one trillion US dollars. Recent strength in the US dollar and rethinking in the Federal Reserve about the path of policy rates in America have caused emerging market currencies to weaken. Fiscal strains and low real rates relative to history have led to rapid erosion of value in some currencies compared to others. Borrowing costs for sovereigns are also rising as financial markets re-evaluate the outlook for inflation, policy rates and fiscal prudence. Several stock markets worldwide are at elevated levels and do not appear unduly concerned about economic growth and earnings uncertainties. Nor have financial stability risks fazed investors even though serious concerns are re-emerging about securitisation, leveraged loans. “The Future of European Competitiveness” Mario Draghi wrote: “The EU also benefitted from a favourable global environment. World trade burgeoned under multilateral rules. The safety of the US security umbrella freed up defence budgets to spend on other priorities. In a world of stable geopolitics, we had no reason to be concerned about rising dependencies on countries we expected to remain our friends. But the foundations on which we built are now being shaken. The previous global paradigm is fading. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets.” This is the global backdrop for India as it seeks to steady and sustain the growth momentum that the economy has experienced post-Covid. The passing of the era of rapid world trade growth clouds the outlook for India’s export growth because, historically, India’s export growth has been a high beta play on global export growth. This means domestic growth levers will be relatively more important than external ones in the coming years. The report on European competitiveness could easily have been written for India. Most of the challenges cited therein apply to India, except that India is an aspiring nation, and the European continent has the cushion of a higher per capita income. Europe is, by and large, ageing, but India has a more youthful demographic profile. That is an advantage, but it comes with a huge responsibility. One of the refrains in the Draghi report is the ‘China Challenge’ to European competitiveness. It is no less for India. Several commentators have recently written about the manufacturing colossus that China has become in the last six years. India faces limitations in producing critical goods at the scale and quality required to serve the infrastructure and investment needs of an aspiring economy. For instance, India has low production capacity in the solar energy sector for key components like polysilicon, ingots, and wafers. The production capacity of monocrystalline silicon ingot is expected to quintuple by 2035 from 2 GW in 2023, but it won’t be enough to meet the demand in the country. Several solar equipment manufacturers in the country significantly depend on Chinese supply chains and related services. The single-source concentration risk in several product areas exposes India to potential supply chain disruptions, price fluctuations, and currency risks. India’s task is cut out. It means going all out to attract, promote and facilitate further domestic and foreign investments that India needs to become a competitive and innovative economy. It will not be easy because competition for investment is not only with other emerging economies but advanced economies, too, who are determined to keep their businesses at home. Equally, investing in and strengthening domestic supply-chain capability and resilience will be the hallmarks of strategic and long-term thinking on the part of the private sector. Alternative sources of supply,
