Growth sans 'big bang' reforms

India's economic resilience shows incremental reforms are more effective

The Indian economy's recovery after the Covid shock of 2020-21 has been remarkable. Who would have thought India's gross domestic product (GDP) growth would exceed 7 percent thereafter for three consecutive years? There is now the prospect of achieving a 7 percent growth in 2024-25 as well.

The growth of 9 percent in 2021-22 is understandable. It represents a bouncing back from the decline in GDP in the previous year. The surprise is the growth rates of 7 percent in the next two years.

These growth rates, remember, have happened under adverse international conditions.

In both 2022-23 and 2023-24, India was faced with the Ukraine conflict and high interest rates in the advanced economies. The fallout of these was a deceleration in global growth. For much of this period, inflation in India too remained at an uncomfortably high level and required monetary tightening.

In November 2022, many analysts warned that we faced exchange rate and balance of payments challenges similar to those of 2013. Some analysts saw the exchange rate of the rupee plummeting to below ₹85 to the dollar. They advised the government to put in place measures to deal with any contingency that might arise.

None of this came to pass. The Indian economy has seen off the challenges of the past two years with aplomb. The finance ministry's review of the Indian economy ascribes the economy's resilience to the policies pursued during and before the Covid shock and a significant derailment of the global economy, as many had forecast. The US and its European allies chose to impose a price cap on Russian oil supplies, instead of an outright ban on these. This had the effect of making oil available at a reasonable price to buyers while limiting the revenues accruing to Russia.