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Journalism of Courage
Dear Readers,
Each year, ExplainSpeaking ends the year with a recap of the highlights from the year gone by. Here’s a good opportunity to look back at some of the most influential economic and policy events that shaped our world. Make sure you click on the embedded links to read the more detailed stories — these recap pieces are peppered with web links. For reference, here are the previous entries from 2020 and 2021.
In 2020, the main event was the nationwide lockdown in the wake of the first wave of the Covid pandemic that determined the shape of India’s economy. In 2021, it was the vicious second wave of Covid that shaped our economy and recovery.
In 2022, it was Russia’s invasion of Ukraine that largely determined the fate of India’s economy. As a result, issues such as inflation, rupee’s exchange rate and India’s forex reserves dominated the news flow more than the routine concerns about GDP growth. This year we also expanded our explainers to several foreign economies such as the crisis in the United Kingdom. And then there were standout issues such as the debate around privatisation of public sector banks or why Indian corporates were not investing in the economy.
The main story about India’s economy in 2022 was high inflation and how the RBI failed to contain it. Headline (read: overall) retail inflation was already above 6% when 2022 started — much before Russia invaded Ukraine. In fact, even core inflation had hit the 6% mark in January. This is crucial because it was only in the December meeting of the Monetary Policy Committee that the RBI finally expressed concerns about core inflation being a concern — yet again exhibiting how it was late to react to inflation.
Of course, the inflation situation flared up after Russia’s invasion and the big question was whether soaring oil prices cause ‘stagflation’ in India? We also explained how high crude oil prices threaten India’s economic recovery.
In April, retail inflation hit an eight-year high — that is, it was the highest since Prime Minister Modi took charge. By the time RBI decided to raise repo rates in a hurriedly convened MPC meeting in May, we explained how it had dropped the ball on containing inflation.
Many argued that India and RBI should not be singled out because inflation was a global phenomenon and all central banks were struggling with it. In particular, the US and the actions (or the lack of them) of the US Federal Reserve were cited. But here is a piece that explained the difference in the context between inflation in the US and in India.
Around this time, the government came up with a particularly odd claim: That high inflation hit the rich more than the poor. We explained why this claim was wrong and showed, using official data, that the poor indeed were more hurt by high inflation.
Higher crude oil prices started upsetting more than household budgets. Many of India’s macroeconomic indicators started getting adversely affected.
Trade deficits started rising as the financial year started and there were concerns about India’s current account deficit, forex reserves and balance of payment.
As the rupee started sliding against the US dollar, the popular focus increasingly shifted to rupee’s exchange rate. Here’s a piece that explains what exchange rate is and how and why it fluctuates. We also explained how India’s forex reserves and rupee’s exchange rate are related.
Eventually, rupee hit the politically sensitive 80-to-a-dollar mark. We explained its significance. But rupee was not the only currency losing ground against the dollar. Dollar had risen against the euro to achieve parity and we explained what this meant, especially for the Indian rupee.
Inflation (which is essentially a reduction in purchasing power) was just the first shock to households. By the middle of the year, centrals banks across the world started raising interest rates. Here’s a piece that explained why this was happening and how it will impact India.
Many readers had a genuine question: how will raising interest rates bring down fuel or food prices? Here’s an explainer on that very topic.
If you wonder why RBI targets retail inflation instead or wholesale inflation as well as the link between food and fuel inflation and RBI policymaking, please read this piece from 2021.
November data showed that retail inflation had dipped below the 6% mark — the upper end of RBI’s tolerance band — but as this pieces explains, monetary policy will continue to be hawkish for a while.
By end of May, it became clear that India had grown by almost 9% in the previous financial year (2021-22) that ended in March 2022. Here’s a copy explaining how to read that data. However, was this growth enough to treat India as a global bright spot or was it more like a one-eyed king? Here’s a piece that tackled this very question.
Then on August 15, the Prime Minister announced that India should resolve to become a “developed” country by 2047. Here’s a piece that examines what it means to become a “developed” country and here are 11 charts to help explain how far India has come in the past 75 years since Independence and how far it needs to go in the next 25 to achieve that goal.
In September came the news that India had overtaken the UK to become the world’s fifth-largest economy. While this was a massive achievement, here’s a piece that not only explained how India overtook the UK but also placed this achievement in the proper context.
Through the current financial year, however, India’s growth got rejigged several times — sometimes in very odd ways. Here is one example of when RBI cut the growth forecast by raising it. This rejigging carried on until December.
But broadly speaking, India’s growth rate is expected to slow down from almost 9% last financial year (2021-22) to under 7% in the current year (2022-23) and further to around 6% (or possibly lower) in the next financial year (2023-24).
In the run-up to the Union Budget, the key concern was to figure out whether the government can come up with a plan to boost employment in the country. That’s because India had historically high levels of labour market stress even before Covid and the pandemic had just made matters worse. Many experts argued that the government should adopt an employment-centric growth strategy instead of just fetishising GDP data.
In the Budget, Finance Minister Nirmala Sitharaman bet on significantly ramping up capital expenditure to start a virtuous cycle of growth. But experts argued that while this strategy had obvious benefits in normal times, India’s economy was still scarred by Covid and it was unclear if the Budget will do enough to boost employment.
The flip side of the government not spending enough and a falling employment rate was the rise in poverty level. The World Bank’s global poverty report in October found that India had the largest population of people living in abject poverty. In fact, 8 out of 10 people who were pushed into abject poverty in the wake of the Covid pandemic were from India [watch this episode of The Express Economist]. Similarly, India continued to rank poorly in the Global Hunger Index.
Towards the end of the year, the concerns about rising poverty and falling employment found recognition when RSS general secretary Dattatreya Hosabale sounded alarm on India’s poverty, inequality, and unemployment.
The year 2022 was a crucial one from the electoral perspective. Several key states such as Uttar Pradesh, Punjab, and Gujarat went to polls. In most cases, issues such as inflation and unemployment were of concern.
Economic stagnation, persistently high inflation and weak outlook meant that several heads (of government) rolled.
In Brazil, Lula pipped Bolsonaro while Bangladesh’s PM is facing a political crisis in the wake of an economic one even as Argentina’s economy continues to be messy.
But it was in UK more than anywhere else that markets and economic realities exacted their heaviest toll on the political order. First, Prime Minister Liz Truss was forced to take “Kwasi u-turn” by firing her chancellor but it was only a matter of time before she had to quit the top job herself.
The only surprise in this regard was President Joe Biden-led Democratic party’s performance in the US midterm elections. Perhaps it was the economics of abortions that allowed the Democrats to trump the Republicans.
There are two ways to look at what lies ahead for India.
One outlook is laid out by a recent Morgan Stanley report that expects India’s GDP to surpass $7.5 trillion by 2031, more than double current levels, making it the third-largest economy in the world. Read this piece to see this in context.
The other outlook is voiced by many other economists who have expressed concerns about India losing a step or two in terms of its potential growth rate. Watch the year-end special episode of The Express Economist featuring Pranjul Bhandari, chief economist for India and Indonesia in HSBC, as she provides a health check of India’s economy.
That’s a wrap for 2022. ExplainSpeaking will return on January 9th, 2023. Share your views and queries at udit.misra@expressindia.com.
Happy New Year to all of you.
Stay masked and stay safe.
Udit
