Indian Economy a Bright Spot but a Bumpy Ride

Most of the economic indicators clearly and reasonably indicate that the Indian economy will grow with a growth rate of not less than 6% in 2023. This is the highest rate of growth among the largest economies in the world while the global economy is slowing down. So without a doubt, it can be said that the Indian economy is a bright spot in the global economy when a soft to moderate recession is in offing in the world economy. This may look euphoric but this ride wouldn’t be an easy one but bumpy and full of many challenges.

At present the Indian economy is facing two big problems that need to be fixed in the short to medium term. The first and most significant problem is high inflation in the economy. This is a very costly situation for the Indian economy. To tame the inflationary situation, RBI has maintained a hawkish monetary policy and this policy stance is the biggest challenge for the economy as if the central bank continues to increase the interest rates in the economy, it would be very costly for the economy.

It's time for the RBI to rethink its monetary policy stance and to stop chasing food inflation which without doubt cannot be tamed using monetary policy instruments. It is a historical fact that high-interest rates will do more harm to the growth of the economy than benefit from easing inflation. So RBI must stop increasing key policy rates now. Rather, the government should try to manage high inflation through policy intervention.

The government needs to act through its fiscal policy instruments to manage inflation rather than tame it. Not only this, the government needs to prepare a plan for the next decade as high food inflation in India has become a regular phenomenon at intervals.

Rajeev K. Upadhyay