Basics matter

India beat its growth expectations for FY23. But there's still ample room to improve

- Puja Mehra

Last year, in the sixteenth-anniversary issue of this magazine, I wrote that the narrative on the Indian economy was turning over-pessimistic. Although things weren’t ideal, there were reasons to remain optimistic. I also listed sixteen reasons to feel hopeful about the Indian economy. Now, a year later, the economy is looking up. However, conditions, I repeat, are still not ideal. There’s tremendous scope for doing better by improving the capacity for economic policy-making, making sound decisions, minimising mistakes, building infrastructure, and strengthening institutions and governance. And yet, the economy isn’t gloomy as the narrative a year ago had suggested it would be.

The latest official GDP estimates released on May 31 show the economy grew 7.2 per cent in the financial year 2022-23. (These are provisional estimates and will be refined over the next two years by the government, and then it will release the final estimates.) Economists and experts have put out a variety of takes explaining the strong performance. The factors range from a favourable statistical base in the last quarter of the year (January – March 2023) to the high levels of pent-up demand due to COVID-19 lockdowns that finally broke free.

In my view, while all of the explanations have merit, the chief reason why India managed to deliver better-than-expected growth is that oil prices eased considerably. India’s economy is energy-intensive and highly vulnerable to crude oil prices (as demand for petroleum products isn’t price elastic). Basics matter. Whenever oil prices flare up, the economy suffers, and when they ease up, the economy recovers smartly. We saw this oil bonanza for the Indian economy in 2014-15 when global crude oil prices slumped suddenly.