India the bright spot in sluggish economy

The April edition of International Monetary Fund’s World Economic Outlook (WEO) shows that the global economy has done better in the year than how the Fund expected it to do. Has the world managed a soft landing from the back-to-back shocks of the pandemic, war in Europe, and monetary tightening to rein in inflation? The tone and tenor of the WEO report suggest that while things could have been much worse, the picture is bearish if one were to make a long-term comparison.

The report also underlines that generating broadbased growth tailwinds is not going to be easy. Policymakers will have to be cautious in dialling back on monetary tightening, and be mindful of the growing national debt burden, especially in advanced countries. All this will have to be done while dealing with the political challenge of growing discontent against economic inequality across and within countries. These short-term challenges will be accompanied by medium-term geopolitical instability in Europe and West Asia and the slightly longer-term challenge of growing resistance to accommodating Chinese exports in new sectors such as electric vehicles and semiconductors. These are far too many problems to be solved with conventional policy tools.

India’s economic story, as described in the WEO until 2029, is of course very different from the world at large. It will continue to be the fastest-growing major economy despite a moderation from current levels of growth. This is good enough to make India the darling of global capital, but might not be enough to give a sustainable boost to the living standards of most of its population. This calls for greater focus and innovation in economic policy.