Topic 1 : Quality of growth
Introduction: The Indian economy seems to be in a sweet spot with healthy growth, moderating inflation, strong FII inflows and healthy corporate and banks’ balance sheets. But that’s not to say that all is well. There are still concerns lurking and the economy needs to tread cautiously in the new fiscal year.
The good health of the economy of India
- Recent economic data releases showing GDP growth at 8.4 per cent in the third quarter of 2023-24, PMI Manufacturing at a 16-month high of 59.1 in March are adding to economic optimism.
- Our credit ratio (number of rating upgrades to downgrades) is at a healthy 1.92 in the second half of 2023-24 (as against 10-year average of 1.57), reflecting the good health of the corporate and banking sector.
Healthy growth, moderate investment
- India has recorded above 8 per cent growth in the first three quarters of 2023-24, with chances of full year growth turning out higher than the advance estimate of 7.6 per cent.
- Growth in GDP has been mainly led by investment, while consumption growth remains weak.
- Consumption GDP is estimated to have grown by 3 per cent in the year, as against a pre-pandemic growth of 7 per cent (2018-19).
- Consumers are spending cautiously on FMCG products.
- The silver lining is that rural demand that had been muted is showing signs of improvement.
- As per a Nielsen report, FMCG volume growth in rural areas has improved to 6.2 per cent in the second half of 2023 from 2.2 per cent in the first half.
- Two-wheeler sales, another indicator of rural demand, is also showing improvement.
- On the assumption of a normal monsoon this year, we can expect an improvement in overall consumption demand.
- The government has continued its focus on capex. But a pickup in private investment will be a critical factor for a sustained growth momentum.
- With capacity utilisation of the manufacturing sector at 74 per cent (close to the long-term average), one can expect the private capex cycle to accelerate in the coming quarters.
- The CMIE data on project investment is also showing increased intent to invest by the private sector.
Services-led exports
- India’s economic growth in 2023-24 has been mainly led by the manufacturing and services sector, as the agriculture sector suffered from the adverse impact of poor monsoon.
- Sectors like hotels, auto/auto components, healthcare, realty, iron & steel, pharmaceutical and jewellery retailers have performed well, while chemicals, textile, cut & polished diamonds, etc, felt the pinch of weak external demand.
- Even while merchandise exports were weak due to the global slowdown, services exports remained healthy.
- Apart from software services, a good performance was also seen in business consulting and travel services.
- Supported by healthy remittances and services exports, It can be estimated that India’s current account deficit at a benign 0.6-0.7 per cent of GDP and at around 1 per cent in 2024-25.
- A very strong FII inflow into the economy has been seen, even while net FDI inflows have moderated.
- FII inflows were at a high of $41 billion in 2023-24 (as against net outflows of $5.5 billion in 2022-23).
- This has taken India’s forex reserves to a comfortable level of around $643 billion.
- Strong FII inflows are expected to continue in 2024-25 as we see the impact of Indian government bond inclusion in the global indices.
- However, this also warrants caution given the volatile nature of these flows.
Inflation and credit
- CPI inflation has moderated below RBI’s target upper band of 6 per cent.
- Core inflation has slipped below 4 percent in the last three months, with persistent disinflation in the services sector.
- However, high food inflation remains a concern. There is specifically high inflation in vegetables (30 per cent), pulses (19 per cent) and spices (14 per cent).
- On the assumption of normal monsoon this year, one can expect CPI inflation to moderate to around 4.8 per cent in 2024-25 from an estimated 5.4 per cent in 2023-24.
- With inflation moderating, the RBI could opt for a shallow policy interest rate cut in the second half of the fiscal year, provided the US Fed also starts to cut rates by then.
- Interestingly, even with higher interest rates, the Indian economy has been seeing a rapid rise in retail credit.
- As a precautionary step, the RBI has increased the bank’s risk weightage for unsecured personal loans.
- This has led to some moderation in personal loans’ growth, but it remains high at around 18 per cent.
- This trend is here to stay given the changing consumption and saving pattern in the economy and easy access to credit.
- While so far there are no signs of stress in banks’ retail loans, there is a need to remain vigilant on this front.
- While overall bank credit growth has been strong, the deposit growth has remained relatively weak.
- This poses liquidity risks for banks while putting pressure on their net interest margins.
- However, the comforting factor is that banks’ asset quality remains healthy.
The overall picture of the Indian economy
- Overall, the Indian economy is comfortably placed with GDP growth likely to be around 7 per cent in the ongoing financial year.
- Structural developments like digitalisation and increased formalisation appear to have pushed India’s potential growth to a higher level.
- This is an apt time for the government to focus on quality of growth, while remaining vigilant of the lurking risks.
- This is also an opportune phase for the government to continue the focus on fiscal consolidation (as seen in the interim budget) and reduction in public debt that had shot up during the pandemic.
Conclusion: With Indian economy comfortably placed, it’s time to focus on quality of growth. Digitalisation and increased formalisation appear to have pushed India’s potential higher, but there is now hope for growth that is sustainable and inclusive
Topic 2 : A call to action
Introduction: The Supreme Court of India has taken an expansive view of two Fundamental Rights enshrined in the Constitution — Right to Equality under Article 14 and Right to Life and Liberty under Article 21 — to underline the need to protect lives and livelihoods in the face of climate change, one of the toughest and most pressing global challenges.
Vulnerability of Indians to climate change
- Evidence for the vulnerability of Indians to climate change is mounting by the day.
- Floods have become more frequent and intense; rainfall patterns are changing and heatwaves pose serious health risks.
- Several studies, including IPCC reports, have warned that global warming will put an increasing number of Indians at risk in the coming years.
- The IPCC report titled ‘Climate Change 2021: The Physical Science Basis’ released on Monday said heatwaves and humid heat stress will be more intense and frequent during the 21st century over South Asia.
- Yet, the toll taken by receding glaciers, landslides, sea-level rise, poor air and the loss of green lungs is rarely an issue for the country’s political class even in an election year.
- Ecology has, by and large, remained the concern only of academics, civil society groups and activists.
- The SC’s prod could be the first step towards a wider ownership of the tasks that lie ahead.
- Global Climate Risk Index 2021 ranked India as the 7th most vulnerable country to the risk of climate change-induced hazards.
Supreme Court’s judgments on environmental issues
- The apex court has, from time to time, seen environmental protection through the lens of rights.
- In M C Mehta v Union of India (1987), for instance, it treated the right to live in a pollution-free environment as a part of the Right to Life.
- Since then, several SC verdicts — including as late as March this year, in a case related to the mining major Vedanta — have underlined that people have a right to breathe unpolluted air, drink clean water and live a healthy life.
- In its ruling on climate change, the Court made important connections between human rights and global warming mitigation.
- “Without a clean environment which is unimpacted by the vagaries of climate change, the right to life is not fully realised. The right to health is impacted due to factors such as shifts in vector-borne diseases, rising temperatures, droughts, crop failures and storms,” it said.
The ball is in the Government’s court
- Governments have not always given proper respect to SC rulings that underline the links between ecology and human dignity.
- Delhi’s continuing air pollution is a classic example of the hiatus between jurisprudence and policy.
- The lack of executive action is symptomatic of a larger problem.
- Environmental issues like air and water quality receive attention only when they become an emergency.
- But with climate change, crisis episodes have multiplied.
- Year after year, extreme weather events expose the unpreparedness of India’s cities, towns, and increasingly, even rural areas.
- These events also invite questions on the country’s developmental endeavours which haven’t always been sensitive to ecological concerns.
Conclusion: The SC has underlined the need to apply correctives: “States are compelled to take effective measures to mitigate climate change”. Its ruling should be seen as a call to action.