One Nation One Election

 As per Press Release of the Ministry of Law and Justice, the high-level committee on ‘One Nation One Election’ constituted under the chairmanship of former President of India Shri Ramnath Kovind in their report submitted to Hon’ble President of India Shrimati Draupadi Murmu has recommended a two-step approach to lead to the simultaneous elections.

As the first step, simultaneous elections will be held for the House of the People and the State Legislative Assemblies.  In the second step, elections to the Municipalities and the Panchayats to be synchronized with the House of the People and the State Legislative Assemblies in such a way that Municipalities and Panchayats elections are held within hundred days of holding elections to the House of the People and the State Legislative Assemblies.

I fully endorse the idea of One Nation One Election and I believe these recommendations chart a good roadmap to finally move towards simultaneous elections.

Following are some of the thoughts on why we need synchronised elections. 

A must to be a developed nation

The concurrent elections or two-phased elections are not just desirable, but imperative for the country’s advancement to much mature democracy and necessity if we aspire for our country to be in the league of developed nations.   Of course we do, and must, aspire to be a developed nation.

No democratic country in the list of developed nations is as populous and as big in size in terms of the number of provinces as India.  Except United States of America and to an extent South Africa.  Other democracies in the list are small and hence having separate federal and provincial elections don’t matter much in terms of cost and days lost due to electioneering. And elections in these countries do not require deployment of security apparatus and are not as intense and tense as they are in India. Of the two big countries, USA has system of two- phased elections and South Africa has concurrent one.

 Saving on cost

The Centre for Media Studies has pegged around Rs 55000 crore or $8 billion spent during the 2019 Lok Sabha elections.  This includes the amount spent by candidates, political parties and election commission.  It is estimated that out of total cost of holding parliamentary and assembly elections, about 20% is spent by election commission. According to this estimate EC spent around Rs 10000-12000 crore for the 2019 parliamentary election.  In addition, between 2019 and 2024 parliamentary elections, EC would have spent on every state election in between separately.  It is obvious, therefore, that holding Lok Sabha and state elections would significantly reduce massive expenditure, the saving of which can be utilised for projects that create jobs and fuel economic growth.  The saving can also come handy for funding welfare schemes.

Better for administrative efficiency and security

There are at least 4-5 elections that happen every year.  This causes administrative machinery to slow down considerably as officials are put on poll duty. In addition, the paramilitary forces that are withdrawn from their posting and deployed in concerned states for securing peaceful conduct of elections.  Simultaneous polls require deployment only once or maximum twice during the year depending on how the methodology of combined elections has been put in practice.  And hence administration and security operations are not frequently interrupted for poll duty requirement.

Avoiding governance paralysis

Every 5 years, there are 30 elections to state legislatures (28 states plus Puducherry and Delhi) and one general election.  Every year average 4 states go to polls. The code of conduct is in place from declaration to announcement of result for average 50 days every year and 70 days for general election.   While code of conduct is in place and parties are busy in campaigning, there is hardly any focus on governance.  So, in effect, out of 1825 days in 5 years, 320 days (50 days per year x 5 years +70 days general election) are lost due to code of conduct and electioneering.  That is almost a year of governance paralysis every five years!!! During this period, all major infrastructure and investment projects in pipeline have to be put on hold, most of government staff remain perennially on election duty and the private sector also holds back on investment due to uncertainty on policies. As a result, the economic activities and development work suffer and with that job and livelihood get adversely affected.

How can we as a nation aspiring to be the world leader can continue with such wasteful exercise of multiple elections one after the other when there are ways to redeem the situation.  

Larger voter turnout

One of the most important factors for any democracy is participation of voters.  Larger voter participation lends vibrancy and broader representation to democracy.   Frequent elections can cause voter fatigue resulting in lower voter turnout.   In the 2019 general election, the voter turnout was 67.40 percent.  Which means that out of 91.20 crore registered voter, 61.10 crore turned out to vote. This figure could go up significantly in case of both parliamentary and assembly elections are held simultaneously.  This will potentially make exercise more inclusive. 

Positive impact on education and health

Annual Status of Education Report (ASER) states that nearly 43% of children in the 14-18 age group in rural areas cannot read sentences in English, while 25% struggle to read a Class 2 level text in their respective regional language.

One of the major factors could well be that teaching staff of primary, secondary institutes and universities imparting higher education as well as technical education are put on election duty and as a result student are left unattended for months, affecting their learning, growth and progress. 

A 2016 report titled ‘Involvement of Teachers in Non-teaching Activities and its Effect on Education’ showed that teachers spent 81% of their time in non-teaching activities, most of which went into election duty.

Public health workers are also assigned pre-election tasks like verification of voter cards and other tasks. They include nurses, clerks, paramedics and technicians who perform important day-to-day work.  Their frequent deployment to election related duties could adversely affect public health initiatives and activities. 

Education and health play very important role in a nation’s wellbeing. We must do everything possible to make them efficient.  

Concerns

One major concern of regional parties over simultaneous elections is that it would overshadow regional and state issues and the national parties will have advantage over regional parties which is detrimental to the federal structure of the country.  The regional parties would not be able to compete with national parties in terms of election expenditure and election strategy.

Legislative assembly elections in the states of Andhra Pradesh, Arunachal Pradesh, Odisha and Sikkim were held simultaneously with the general election of 2019, as well as by-elections of twenty-two seats of the Tamil Nadu Legislative Assembly.  Yet regional parties in three out of four states won the election.  The ruling party at the Center won only in one which is 25%.  So, the fear that the concurrent elections are disadvantageous to regional parties and that local issues would be overshadowed is misplaced.

There are various other concerns like pre-mature dissolutions due to various reasons, feasibility and practicality of holding parliamentary, assemblies and local elections together from point of view of adequacy of resources and security and other statutory requirements like holding election within six months of dissolution of a government.

The Law Commission Working Paper have made several recommendations to address these issues through amendments of Representation of the People’s Act, the no-confidence motion may be replaced with constructive vote as in Germany through suitable amendments in rules of business and the statutory limits may be extended as a one-time measure. 

Anti-defection law could be amended to allow defection only after full-term is served by a member elected on a particular party ticket.  This will also reduce scope for horse-trading.

Conclusion

The idea of One Nation One Poll in India offers cost saving and reduces disruptions caused by frequent elections.  There are logistical and constitutional challenges but a well-thought-out plan with involvement of all stakeholders, the idea is implementable and desirable from the perspectives of cost, governance, administrative efficiency and social cohesion.  In conclusion, quoting a view of Bharat Ratna and former President of India Late Shri Pranab Mukherjee on simultaneous elections would be most appropriate. 

“With some election or the other throughout the year, normal activities of the government come to standstill because of code of conduct.  This is an idea the political leadership should think of.  If political parties collectively think, we can change it.  The Election Commission can also put in their idea and efforts on holding the polls together and that will be highly beneficial.”

I endorse the idea fully.

Rising India narrative over China

Let us first understand genesis of the rise of profile of India. India started to get noticed when India and US signed civil nuclear cooperation agreement in March 2006.  Although India-U.S. relations were on stable course unlike earlier years which can be described as a period of roller coaster relation between two countries, it was not yet there for getting into something as significant as cooperation in civil nuclear deal even when India was -and still is - not signatory to Nuclear Non-Proliferation Treaty (NPT).  

To facilitate the deal, President George W Bush went extra mile to push through amendment to domestic law and grant of an exemption from. Nuclear Supplier Group for nuclear cooperation with non-member India. It was unbelievable precedence for the global polity, which since then has been tracking India. The deal was in my opinion was the arrival of India on global stage.  

 

The signing of the deal was part of a well thought out strategy by US.  It was to bring India into the centre stage as a pivot to its Asia policy and as a counter to China’s growing clout.  The reason to choose India was obvious.  The largest democracy.   With all its flows but still a democracy.  Its economy on the rise consistently since it was liberalized in 1991. At the time of signing, India was the 14^th largest economy in the ranking of GDP of 195 countries, rising per capita offering very large consumer market, housing, retail, infrastructure on growth trajectory, strong currency, large forex.  India was clearly on robust growth path. Militarily, it was already having second largest army after China and a nuclear power.  

The narrative was set as comparative discourse about India and China entered in all debates around economy and geopolitics.  However, in the period that followed, China was more focused on building its own economy and positioning it into pre-eminence position. The focus was lesser on border disputes with India.  There was no movement on India-US deal which largely remained on paper. The US Senate passed it in October 2008 into 123 Agreement.  Unfortunately, global financial crisis unfolded following housing bubble bust in the US bringing down Lehman Brother which cause ripple effect globally.  In India too economic began to falter. Economic growth decelerated in 2008-09 to 6.7 percent. This represented a decline of 2.1 percent from the average growth rate of 8.8 percent in the previous five years. The Reserve Bank of India (India’s central bank) swiftly responded by easing monetary policy and the government by introducing stimulus packages to boost demands.  This calibrated response put GDP growth back on track to pre-crisis level and the economy as the fastest growing major economy after China.  The world again took note of India.  So did China.

The above background was necessary to grasp how India story was shaping up to elevate its global profile. 

Just as in India the general election mood was occupying much of news space from middle of 2014, in China the change of guard took place as Xi Jinping was elected as President by National People’s Congress in March 2013.  He immediately started flexing muscle against India with border incursions in next three successive years.  But soon India was going to change.  The political alliance of Bhratiya Janata Party (BJP) won general election with landslide majority and Narendra Modi assumed office of the Prime Minister.  He immediately embarked upon extensive engagements with global leaders in terms of bilateral visits in his first term of five years.  Under him, the diplomacy changed profoundly.  From reactive to proactive and from defensive to aggressive. It moved away from its non-aligned posture since independence. 

Then came the black swan event of the century – the Covid pandemic grinding the world to halt. Complete lockdown of economies around the world.  The reports of the origin and spread of deadly virus from Wuhan in China to entire world changed the perception of China in the minds of global community.  The over dependence on Chinese supply chain proved costly for world economy which remained severely disrupted for much of next two years.  This realization caused governments and businesses around the world to mo e to China + 1 strategy for alternative supply chain.  At the same time Xi Jinping started clamping down on global companies who had established units in China after its open economy policy. It became more and more unpredictable to do business in China.  Its zero-covid policy crippled its economy and fault line started to appear in economy with burgeoning deficit to GDP ratio.   

At the same time, India was becoming more and business friendly with economy robust and unlike China it was founded on strong fundamentals and not on deficit financing.  

In the last decade under Modi, India has changed completely.  The Indian image has been recognized, whether it is for the 3^rd largest startup hub, innovation, space achievement, building world class infrastructure, yoga, pharmacy of the world, its vaccine diplomacy, talent pool of skilled youth, leading climate action in Paris and Glasgow, its aggressive posture against China during 2020 border clashes, its lifting of 250 million people from below poverty line, its role of solution provider in multilateral dialogues, and its impressive G20 presidency.

The fundamental change that the Prime Minister Modi brought was shifting the international political discourse and attracting global businesses to increasing look at India as alternative to China. 

The first two terms of Modi government worked in financial inclusion, health insurance, electricity, gas, water, roads, toilets, food, houses and digitisation. The production-linked incentive (PLI) scheme was a great economic initiative that could transform India into export-oriented manufacturing hub and ideal destination for foreign companies looking for diversifying their production from a china’s increasing draconian rules.  The world has also noticed with awe the technology advances India has made, the Unified Payments Interface (UPI) and Open Network for Digital Commerce (ONDC) are gaining global traction. 

The PM Gati Shakti Master Plan (Speed with power) for providing multimodal connectivity to various economic zones is transformative.  Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, agri zones etc. are being mapped for integrated infrastructure planning and make Indian businesses more cost competitive. This will boost economic growth, attract foreign investments while de-risking investments by visualizing the connectivity, and enhance the country’s global competitiveness in export markets.

While China’s economy is slowing down, its population greying, the Indian economy is likely to achieve a growth rate of 7% in fiscal year 2025 after growing at or above 7% in 2023-24, driven by resilient domestic demand despite risks and uncertainties in the global economic landscape. More than 50% of India’s population below the age of 25 and more than 65% below the age of 35. It will continue to have this demographic dividend until 2050.   

In next three years, Indian economy, which is 5^th largest now, is likely to become the 3^rd largest.  The stock market and banking system are robust.  The ease of doing business has improved drastically, FDI policy has been liberalized to allow 100% through automatic route, the invest climate has improved, 

According to the World Investment Report 2023, India emerges as the FDI powerhouse and secures the third-highest foreign investment in 2021-22. The total amount of FDI inflows received during the last ten years (April 2014-September 2023) was US$ 629.58 billion. This FDI has come from more than 101 countries that have invested across 31 Union Territories and States and 57 sectors in the country.

Add to this the interim Union budget presented by the finance minister of India on February 1.  It reflected the government commitment to accelerate efforts towards achieving developed nation status by 2047. It is remarkable that a big increase in capital outlay by 11% to around 150 billion USD and fund allocation of around 13 billion USD for work opportunities and employment generation has been done while adhering to fiscal discipline.  This is more praiseworthy that the fiscal prudence was maintained even though this year being general election year when generally the government resorts reckless splurge on populism. Globally, investors were expecting that.   Investors have recognized continued focus on fiscal sanctity, and it is reflected in global interest in doing business with India. India’s stock markets also reflect this enthusiasm. India’s markets recently overtook Hong Kong to become the world’s fourth largest with a valuation of $4.33 trillion.

Clearly, there is discernible shift in global narrative of India over China.

Perils of Freebies

 

On July 16, 2022, Prime Minister Modi spoke first time about revdi (freebies) culture and called it dangerous for the country’s development while inaugurating an expressway in UP. 

Again, on October 23 the same year he said in Bhopal that “thousands of taxpayers write to me, and I am happy that a major section of the country is gearing up to free the country of the revdi culture.”

Ever since the debates on ‘revdi culture’ or ‘culture of freebies’, are raging in political circles as well as in media and many sections of the society.  

Opposition parties taunted PM for hypocrisy and double standard when BJP announced slew of pre-poll promises in several states which went to elections after that assertion by PM.  But those who know Modi’s style of working know that he took that stand on freebies fully knowing it would be difficult for all political parties, including BJP, to resist from resorting to politics of populism for electoral gains.  But he has set the ball rolling as a long-term objective to put an end to unjustifiable handouts that are so devoid of fiscal prudence and has little, if any, impact on the well-being of the society, and surely detrimental to economy. This may be is in his to-do list after the 2024 general election. 

The idea is on the table, and it is worth deliberating.

The debate on freebies is complex but crucial nonetheless. Complex because there are diverse views on what constitutes freebies and what constitutes social welfare.  And crucial because it is important to distinguish kind of handouts that not only detrimental to fiscal health but, more importantly, the beneficiaries develop a kind of dependency and lethargy that keep them where they are. 

As for definition of freebies, here is what RBI in its December 2, 2023 report on State Finances: A Risk Analysis has to say - While there is no precise definition of freebies, it is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits, such as the public distribution system, employment guarantee schemes, states’ support for education and health (Singh, 2022). On the other hand, provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies, which potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and disincentivise work at the current wage rate leading to a drop in labour force participation.

My definition of freebies is very clear.  Any handout which has no basis in policy or offered in perpetuity is a freebie. Free electricity and free water, for example.  Any handout offered by political parties in run up to an election is a freebie. Free sarees, pressure cookers, television, washing machines, free ride in public transport, cash transfers to graduates, to farmers, loan waivers, free this and free that.  No policy vision behind it except luring electorates for votes.  At cost of public money.  Any subsidy not going to right people but cornered by better-off is a freebie. 

Such freebies hurt because they crowd out resources from other useful purposes, like education, healthcare, rural roads, other infrastructure projects that contribute to growth.  Such freebies also hurt those for whom it targeted.  Soon people develop a mindset where they begin to look at such subsidies or handouts as entitlement, their right. This is detrimental to any nation as the human capital remain lethargic, devoid of any aspirations or enterprise or hard work because they get used to ‘free’ everything, including cash doles.  This results into decrease in productivity, wastage of human capital that would ultimately impede or stall growth. 

A nation in such a situation of alarming proportions of freebie culture could face bankruptcy.  Venezuela, a socialist country and once a rich economy, has now completely collapsed as its people stopped working because they were getting all or most of their needs free from government. Cuba is another example.  Socialist ecosystem breeds culture of freebies and bleeds economy.  China became what is today because it adopted capitalist economic model. Before that it was the country of abject poverty.

That explains why in India the culture of freebies has taken roots.  For decades after independence, it followed socialist policies with economy growing at abysmal growth of 3 percent, which kept the poor in perpetual poverty and brought the nation to the brink of bankruptcy.  It was only after the post-1991 era of reforms that liberalised economy the growth accelerated, and poverty began to decline rapidly, and at the same time recorded impressive improvements in most human development outcomes.  Thus, it is the high growth which is a better way of ensuring social wellbeing and better life and livelihood. 

In his recent book, Modi: The Challenge of 2024- The Battle for India, the author Minhaz Merchant writes, quote “Poverty and socialism went hand-in-hand. While the GDP of countries in the rest of Asia—from Malaysia to Thailand—grew at over 7 per cent a year through the 1960s and 1970s, India crawled at the Nehruvian growth rate (wrongly dubbed the “Hindu growth rate”) of under 3 per cent a year. Had India’s GDP growth matched that of other Asian countries in that 20-year period, India’s economy would today be double its size at $7.5 trillion, not $3.75 trillion. Per capita income would be nearer $5,000 than $2,500 and poverty levels below 5 per cent, not today’s 10 per cent. In short, 150 million more Indians would have been lifted out of the poverty they live in today.” Unquote.

The recent assembly election outcome in Telangana has demonstrated that offering doles don’t always win elections.  The incumbent BRS party government led by Chief Minister K Chandrashekhar Rao was tipped to win again on the back unprecedented welfare schemes rolled out by them that covered all sections, genders and ages of the state population.  If we take out welfare schemes that could be considered productive, the rest still cost the state the whopping 52000 crore rupees annually.  They still lost. Point to ponder for all political parties that there is a limit to fool people with handouts. 

The recent Bollywood movie 12^th fail has beautifully captured aspiration of youth, even in remote rural area.  All that the protagonist from a very poor family aspiring to become an IPS or IAS wanted was uninterrupted and affordable electricity so that he could work during the day to support the family and could read at night to prepare for exams, water on tap so that the family did not have to trudge miles to get water and good schools with quality education   He rejected summarily all offers of cash or help in kind. 

Prime Minister Modi understands this. He won three terms as chief minister of Gujarat on the back of his growth-oriented policies.  The BJP led by Modi won election after election in states and at the centre since 2014 was because of the strong focus on growth and social transformational schemes that improved life and livelihood of masses.  Sadly, the same BJP too succumbed to populism in recently concluded assembly elections.  The hopes are still not lost to free India of competitive populism that strain finances. The prime minister’s assertion that the freebie culture is dangerous for the country’s development is a silver lining.  Because he believes in delivering that he firmly thinks is in national interest. 

Another hope is from the Supreme Court which recently waded into freebie debate when it sought responses from the Union government and the Election Commission of India (ECI) on the continued practice of freebies being promised by political parties before elections, with an observation that the promise of freebies was a serious issue. 

If the BJP comes back to power, as almost certainly predicted to win comfortable majority in the 2024 general election, the PM Modi must act on his vision to rid the country’s polity from the scourge of indulging in rampant freebie politics by being catalyst in encouraging national debate on freebie politics and come up with some kind of binding legislations to enforce rationality of freebies and accountability that would make all political parties declare how they are going to fund the welfare measures and ensure public expenditure efficiency. 

The nation is hoping on Modi Ki Guarantee to get rid of politics of competitive freebies which are perils to nation’s economy and its people. 

Views are personal

AI – Bane or Boon?

Collins Dictionary named “AI” as the Collins Word of the Year 2023.  Historical gathering of global leaders from 28 countries and technocrats in AI Safety Summit hosted by British Government unanimously signed Bletchley Declaration that resolved to work together in an inclusive manner to ensure human-centric, trustworthy and Responsible AI.  European Union is negotiating drafting AI Act by end of the year.  An Executive Order on AI is expected from the Oval office in White House.  There are already several laws in China governing AI.  The race is on to rein in AI.  One bright side of the global efforts on understanding and regulating development and use of AI is that unlike other global concerns, like climate change, there is lot of unanimity on the urgency to collectively address potential risks from AI.  This is indeed good news as whatever risks that AI would pose transcend borders and thus needs global architecture of governance in absence of which AI’s unbridled use can cause threat to humanity cannot be checked.

The question is whether AI actually could be existential threat for humanity as it is made out to be? Many experts tend to believe so.  Even common people are not so much excited about benefits than they are wary of its possible deadly abuses.  Their fear naturally stem from what scary things they read and hear around generative AI.  However, there are no clear answers to what are the things about AI that the world should worry about or how AI as it advances could be used as a potent tool of destruction and malfeasance.

But it is heartening to see that the world is coming together now than later as it is always good to pre-empt than to react so as not to be caught off guard.  When there is so much of loud noise about possible abuses and threats from AI and when even technology giants are lobbying for some sort of regulations to check reckless use of AI lends some traction to speculations of doom and gloom around Artificial Intelligence.

The world was caught unaware of what harm social media and internet could cause to social and political fabric of nations.  The hatred and falsehood and deep fake it could spread to stir violence and radicalise people. Pit humans against human.  We have this case study to be cautious about any new technology that is round the corner.   So much information is available on internet that anyone can make a bomb. Similarly, can we discount possibilities of using large language models to create deadly pathogens?  After all, ‘intelligence’ in AI is “artificial’ unlike human intelligence that is generated from biological brain.  The data is the brain for AI and which can so easily be manipulated by humans with ulterior motives. 

However, while the world is being cautious and rightly so, and there is need to regulate AI, but in absence of any idea on what to govern or what to regulate and how, it would be wise to not rush into kind of regulations that could slow down advances in AI that could transform lives and livelihood, the brighter side of AI.  

We already are experiencing how AI is helping in our everyday life.  In virtual assistance like Alexa or Siri, in e-commerce; fraud detection in banking system; autonomous vehicles; household appliances; in medical diagnosis and healthcare; chatbots; weather forecasting; et al.  It has become integral part of devices and applications we use daily.  Discoveries of new life-saving drugs and development of vaccines used to take years of research but the AI has made this process faster.  As the world was hit by corona virus and the Covid-19 pandemic was devastating lives across the globe and the world literally came to a grinding halt, there was no drug to cure or vaccines to protect against and to prevent the spread of COVID, it was thanks to discoveries using AI algorithms that the vaccine was developed in less than a year which probably saved millions of lives and halted pandemic.  The AI could help finding solution to the threat from climate change and global warming. 

So, just as we are dealing with so many threats to humanity – from pollution to global warming to climate change, from cybercrimes to deep fake to super bugs, we can deal with any potential threats from abuse of AI. Global efforts are already underway to deal with it.  

But the way countries are racing to erect control regimes for AI, my worry is that it could lead to an overkill and throttle innovations and discoveries that could transform the world for better.  While benefits of AI are known and threats are largely speculative, it is best to remain vigilant and invest in global research collaborations for the study of AI and its likely abuses to understand it better in terms of its impact on privacy, jobs, weaponisation and criminalisation of AI algorithms.  After such an extensive globally collaborated study, it is advisable to make rulebook accordingly.  

At the same time, initiatives like London AI Summit should be more frequent with larger participation from countries and technology companies as well as wizards to deliberate on possible guardrails against abuses of AI such that the purpose is served and yet does not create bumpers for the AI technology on its path to progress.  Also, sharing of information about how AI technology companies are managing risk is important to have better idea.      

Another thing for any efforts to rein in bad AI to be successful, global architecture is needed.  Some countries having lighter rules will defeat the purpose as AI is truly global technology that cannot be shackled to national boundaries. 

So far, global community is in consensus to find ways to regulate AI in such a way that risks are guarded against without obstructing free flow of idea and innovations.  So that Artificial Intelligence-AI- remains boon rather than becoming bane for the humanity. 

What Lies Ahead? Future of Economy through Crystal Ball

Economies and capital markets are in turmoil.  Inflation is at record high. Global shares are down 25% in dollar term.  US Fed has raised interest rates five times so far in calendar year 22.  But inflation still remain in double digit.  Europe is facing double whammy of inflation and energy crisis.   Soaring price of food and energy is causing serious problem for people. Many face situation where they will have to choose between eating or heating as winter is closing in.  As global inflation remain stubborn, monetary authorities around the world are in dilemma about how much could they raise interest rates without risking pushing economies into recession.   Geopolitical tensions and conflicts are compounding already prevailing grave situation.

As trends in world economy give no clue as to where it is, or will be, heading,   Crystal gazing is only what economists and governments around the world can do at the moment.

According to KPMG India 2022 CEO Outlook survey, overwhelming number of CEOs globally and in India have already crystal gazed global economic outlook into recession in the next 12 months.   They have all the logical reasons pointing towards that. 

When I look through crystal guessing ball myself, I clearly see the other side a new normal emerging. Sooner the nations acknowledge and accept this new normal, better for their economies.

But as we first look back to find roots of today’s economic rot, we find that for years since the financial crisis of 2007-09, the central banks in America and Europe kept lowering interest rates uninterrupted all the way to near zero and in some European countries and in Japan to negative interest rates.  This left no room for monetary policy to boost economy when pandemic struck out of blue.  The fiscal stimulus was only option left. The result was unprecedented stimulus by way of massive quantitative easing and doling out cash in US, UK and elsewhere in Europe.  What was envisaged as instrument to revive economy was actually acting as temporary props to hold economy aloft.  As pandemic started receding, people started spending money they received as gratis.  In addition, instead of changing gear from stimulus to restraints, the governments continued with loose fiscal policy.  The result of which we see today with bewilderment as global inflation surged to above 9%.  The Russia-Ukraine conflict fuelled inflation further with food and energy prices surging upwards.  The panic alarms were set as most of the central banks started raising interest rate multiple times in 2022 to tame the inflation.  Inflation targeting is seen by them as solitary challenge.  But so as to avert effect of economic slowdown due to tightening of monetary policy, governments are forced to continue with loose fiscal policies of tax cuts and subsidies.  This has made fight against inflation difficult.  From near zero, the interest rates are moving in opposite direction, again uninterrupted.

How much can central banks hike the interest rates?

Here is the new normal sets in.  The governments and central banks will have to come to terms with higher threshold for inflation before monetary measures must kick in. 

As I move my gaze from global to Indian economy, I clearly see hope. 

And again as we look back, we find answer in the Government of India’s immediate response to pandemic induced slowdown.  It was a well-calibrated response with a bouquet of safety-nets to cushion the impact on vulnerable sections of society as well as the business sector at the same time. The government realised early both must be provided support to sustain. Alongside a significant increase in capital expenditure on infrastructure to build back medium-term demand as well as aggressively implemented supply-side measures prepared the economy for a sustained long-term expansion.

Realising that support system was needed for India’s MSMEs, which contribute to 30% of GDP and employ more than 100 million workers, the government quickly rolled out plethora of support schemes to tide over Covid-19 woes. 

To promote manufacturing in India with view to insulate itself from future global supply chain disruption and make India self- reliant as well the manufacturing hub for Indian global companies, the government launched Productivity Linked Incentives (PLI) scheme. PLI offers financial incentives to boost manufacturing and attract large-scale investments. It is output oriented and gives out incentives based on performance and not promises. So, if a manufacturer makes, say, USD1 million of incremental sales of goods under PLI, he can get USD 50,000 as cash-back. Similarly, there are sector-specific clusters being developed. 

There are several problems remain to be ironed out in those schemes and initiatives. But the government is working on to address them.  Like to provide the world-class infrastructure for manufacturing, the government recently launched National Logistics Policy with objective to make Indian goods more competitive while also promoting economic growth and expanding job possibilities.

Due to such calibrated and long-term measures by Indian government in last three years, despite inflation around 7.4, the economy is expected to grow around 6%.  It has remained a ‘bright spot on the dark horizon’, according to IMF. 

Turning back to present and future, I remain optimistic as I see lot of factors to be optimistic about.

• Large domestic market is the biggest positive. With per capital rising and poverty rate falling, this will work in our advantage if the world slips into recession as feared.

• Much of the outcome of PLI will start trickling in from early 2023 as companies shift gears from processing stage to executing the projects. PLI has already created around 450,000 jobs and the government expects that eventually 6 million additional jobs will be created.  However, tedious paperwork and approval process will have to be addressed. Also currently manufacturing depends on getting components from outside. The next PLI should focus on components and sub-assemblies and aim to reduce the imports to make manufacturing globally more competitive.

• India has been aggressively pursuing FTAs.  We have recently concluded with UAE and Australia.  We are in talks with UK and we hope to have one with EU next year.  This will boost manufacturing-led exports.

• Over the last few years, we have had record foreign direct investment including in 2021 which witnessed the highest ever FDI of USD 82 billion.  This demonstrate international investors’ confidence in India growth story.

• India is an island of stability, amid the on-going geopolitical disturbances.

• Continuing Structural reforms, macroeconomic stability, predictable policy, business friendly ecosystem, reliable broadband penetration across the country, robust digital infrastructure a democratic, rule-based, open and investment friendly economy.

• According to a survey, Indian business leaders have put in place resilient mechanism to prepare them to withstand any looming global recession.

With such strong and robust economy in place, I see India unlikely to face recession.  However, RBI also must acknowledge the new normal and not worry much about inflation.  Continuing with the stance of hiking rates will be detrimental to otherwise resilient Indian economy.