ECONOMY AWAITS BIG POLICY PUSH

Growth above 6% seems to stoke inflation, higher expansion needs removal of structural infirmities

- KG NARENDRANATH

THE YEAR 2023 has been better on the economic front for India than envisaged at its dawn. The Reserve Bank of India (RBI) has recently raised its forecast of the real GDP expansion for FY24 to 7% from 6.5% (this implies the same rate of year-on-year growth in the calendar year 2023). It has also started to worry again about the demand pull stoking inflation.

While there is near consensus about a prospective slowing of growth in 2024, two analytical formulations clash.

One view, which has the official backing, is that there may be a plausible "underestimation of the economy's underlying momentum and dynamism".An "unprecedented tax buoyancy" (of nearly 2 for the Centre in the first half of this fiscal) is the main reason for the assumption. High level of capacity utilisation in a section of the industry is seen to trigger a long-awaited investment cycle.

Another section rues a draining of the economy's capacity to expand faster, and expects a resultant trough in the medium term. It also highlights a sustained trend of rural consumption lagging urban's, high indebtedness of the larger household sector, and the stagnation-realterm decline-in wages and income, across large sections of rural and urban people.

While the new year would see a Parliament election, midway through it, the new government at the Centre would inevitably be addressing the uncertainty about the course of the economy. The full Budget in July would have already laid the road map by then.

With globalisation taking a backseat, global demand sluggish and geopolitics unpredictable, the policy changes will have to be aimed at resolving the domestic household income crisis, and boosting the savings rate. They must also make public-private partnership work in infrastructure sectors, other than seaports and airports, where it is already up and running.