India's Protectionist Economy: A Shield in Need

Indian economy has traditionally been regarded as protectionist, with policies intended to shield local industry while exposing to healthy global competition. While some critics have argued that the approach suppresses growth and creativity, others argue that it is warranted because of the economic and social conditions in the country. The International Monetary Fund (IMF) projects India to grow at 6.4% in 2025, which clearly demonstrates the power and potential of India.

The protectionist policies have imposed a few non-tariff as well as tariff trade barriers, but not harmed the economy. Instead, India's growth story is one of incremental liberalization, with the government balancing to let in foreign investment while protecting national interest. The dairy sector is one such example, where India has not let itself be opened to foreign competition, lest it face the consequences on country-specific farmers and the rural economy.

The recent trade tensions with the United States have solidified India's protectionist stance. In the negotiations of the interim trade agreement, India did not acquiesce, rejecting proposals that accommodated American interests at the expense of Indian farmers and dairy farmers. The US had proposed allowing the entry of American dairy products, including non-vegetarian milk, which was seen as a threat to India's dairy industry. However, in the case of non-vegetarian milk, ethical considerations relating to religious sentiments is another important reason.

India Needs to be Tough with MNCs

When you are negotiating with a bully who is a narcissist, you need to confront wisely and skillfully; otherwise, the bully will keep creating ruckus for you. However, India has to tread very carefully as it has an opposition which is hell bent to down Narendra Modi at any cost. The Opposition wouldn't hesitate even if their actions would be damaging national interests because the same opposition has cheerleaders in the form of millions of supporters. However, India needs to be diplomatically strategic with multinational companies (MNCs) even if the opposition doesn't support this.

Microsoft has restricted Nayara. It cannot access its data. Whatever has happened in this case needs urgent attention from the government. India needs to take a tough stand against such MNCs which go against the interests of the Indian economy. The Nayara case is enough to show a tough face to Microsoft India. It must be made very clear to Microsoft India that it is registered in India and that it has to protect Indian interests first than to serve the American interests. The same message must be conveyed to other companies also.

Will India Use these Tariffs as an Opportunity?

Donald Trump has unilaterally imposed a tariff of 25% plus a penalty on Indian exports, citing its trade with Russia. While giving concessions to China, even though Chinese trade with Russia is far higher than that of India. Not only this, but the USA is also buying many critical items from Russia. In 2024, the US had a trade of $3.5 billion with Russia, and China's trade with Russia was about $240 billion in the same year. However, in the meantime, India and the USA are negotiating an interim trade deal, and this announcement has come amidst a series of negotiations!

The recent tariff imposition by Donald Trump on Indian exports seems like a strategic move rather than an abrupt decision. There are a few reasons which are forcing the USA to take such steps.:

Trump's Annoucements May be a Boon for India

Donald Trump has unilaterally imposed a tariff of 25% plus a penalty on India for trading with Russia and China despite the fact that the USA is also buying from Russia as well as China. However, India and the USA are negotiating an interim trade deal and this announcement has come amidst the series negotiations!

One may wonder what could be the possible reasons? Is it an abrupt announcement by Trump? Or a well thought strategy of the Trump Administration?

There are a few reasons which are forcing the USA to take such steps. First, India has taken a very tough stand on the issue of agriculture, dairy and some metals and is not ready to give any space to any country in these categories and the USA is desperately looking for new markets for its agriculture and dairy products. Second, the US realizes very well that the innings of the US as the most powerful economy in the world is going to be over soon in a decade and the export business of dollars wouldn’t continue unchallenged for long. Not only BRICS but many other countries are also looking for alternatives to the US dollar.

विकास बढ़ा रुतबा चढ़ा

भारतीय अर्थव्यवस्था जापान को पीछे छोड़ते हुआ दुनिया की चौथी सबसे बड़ी अर्थव्यवस्था बन गई है। अंतरराष्ट्रीय मुद्रा कोष (आईएमएफ) की रिपोर्ट के अनुसार, भारत की जीडीपी ने 4.187 खरब डॉलर है। इस आर्थिक विकास ने भारत को वैश्विक स्तर पर सबसे तेजी से बढ़ने वाली प्रमुख अर्थव्यवस्थाओं में से एक बना दिया है। इस विकास यात्रा में विभिन्न वैश्विक चुनौतियों के दौरान भारतीय अर्थव्यवस्था ने लचीलापन और अनुकूलनशीलता प्रदर्शित की है, जिसमें कोविड-19 महामारी, आपूर्ति शृंखला व्यवधान और भू-राजनीतिक तनाव भी शामिल हैं।

आर्थिक विकास में कृषि व विनिर्माण जैसे पारंपरिक क्षेत्रों के अलावा सेवा और प्रौद्योगिकी क्षेत्र की महत्वपूर्ण भूमिका रही है। ये क्षेत्र न केवल अर्थव्यवस्था को संरचनात्मक विविधता प्रदान करते हैं, बल्कि विकास के वाहक और जोखिम शमन तंत्र प्रदान करने के साथ-साथ भारत को दुनिया का उत्पादन केंद्र बनने के इसके सपने को आधार भी प्रदान करते हैं।

Who is Terrorist?: Entrepreneurs or Terrorists

India dreams of becoming a developed country by 2047. It is not impossible to achieve this big and ambitious dream but it is definitely very difficult; almost near impossible if all the players don’t do their parts properly. The biggest difficulty in this is the mind-set of Indian citizens and that situation is very peculiar.

A strange belief has developed in the Indian psyche, which considers traders and big businessmen as criminals and capital as wrong and sometimes sinful. Poverty has been glorified in Indian texts (however, poverty was glorified for the Brahmans, the knowledge preachers and the teaching community). Not only this, the Indian media as well as the society have developed a tendency to give a clean chit to criminals based on caste and region. Corruption has become such a dignified act that it is now the new normal to come out of the vicious circle of poverty. Not only this, even in terrorists, the family background of terrorists and who is a teacher's son often becomes a topic of national discussion!

India's GDP may become 50 trillion dollars, and per capita income may even exceed that of America, but as long as India keeps looking for criminals among traders and big businessmen and a teacher's son among terrorists, it is impossible for India to become a truly developed country.

Should India Respond to the Unilateral Reciprocal Tariffs?

India has become an important player in international trade post its integration with the global economy after liberalisation in the 1990s. At present, India has a trade-to-GDP ratio of about 40%. India mainly exports textiles, medicines and IT services while importing petroleum products and high-tech machinery. Reciprocal tariffs are used as tools either to retaliate or challenge the trade balance. The USA has announced it to impose 26% tariffs on Indian exports to the USA. Though the USA has pushed a 90-day pause button for most countries, barring China and a few countries which have responded to the 2nd April annulments of the US President.

Reciprocal tariffs are in alignment with mercantilist principles and aimed at protecting the domestic markets by matching the foreign trade barriers. According to the classical theory of trade (Ricardo), tariffs distort comparative advantage and increase consumers' costs lowering welfare. Reciprocal tariffs can, however, protect infant industries and balance out trade deficits. For India, an emerging economy with both mature and infant industries, the effectiveness of reciprocal tariffs would depend upon the extent, targeting, and tenure.

Indian Stock Market to Grow Despite FIIs Withdrawing

The Indian stock market has been in jitters for some time. In the last 6 months, FIIs have withdrawn huge amounts of money from the Indian market. In the last 1.5 months alone, FIIs have withdrawn about ₹1 lakh crores from Indian markets. Despite this, the market has gone by about 15% and 6% only in the last six months and 1.5 months respectively.

What does it mean for Indian markets?

This simply means that Indian markets, though still being affected by the FII investments are not as dominated as were previously! The young investors in India are on the scene. They have invested about ₹2 lakh crores in markets in the last 6 months. Rather than leaving the market, they are investing, unlike the earlier trends!

This shows the confidence and optimism of young investors in Indian markets and the Indian economy. This confidence will change the attitude of FIIs. Also, the new Trump Administration in the USA would become more predictable. These together will attract back the FIIs to India.

Adani Group, SEBI and the Report of Hindenburg Research

On 10th August 2024, Saturday, the Hindenburg Research published a so-called explosive report on the Security and Exchange Board of India (SEBI) chairman Madhabi Puri Buch and Indian conglomerate Adani Group. The report made an allegation that the SEBI chairman’s involvement in offshore funds and money siphoning. This report neither did generate the kind of discussion nor have the same reactions from the stock market the way a similar report in January 2023 had on the Indian stock market and Adani Group stocks!

This time, the Adani Group as whole has lost its market capitalization by just about 1% than the market capitalization before the said report, released on 10th August 2024! However, a similar report by Hindenburg Research in January 2023 wiped out the value of some Adani Group companies by 83%. Adani Total Power lost about 83% of market capitalization post revelations in January 2024. The whole Adani group had come under huge pressure. The whole group lost about $150 billion in valuation. Many financial institutions raised concerns about the future of Adani Group. It also had to cancel its FPO. Gautam Adani, the group chairman of the India conglomerate lost its position from the list of top ten richest people in the world!

Why? Has the short seller Hindenburg lost credibility at least in the Indian security market? A short answer to this question is perhaps, yes!

Reliance Industries has Got the US Nod to Import Crude Oil from Venezuela

Reliance Industries has got the US nod to import crude oil from Venezuela. ONGC has also applied for a waiver to buy crude oil from Venezuela! It is quite possible that ONGC will also get a similar nod. It should be noted that Reliance Industries is the second largest buyer of crude oil from Venezuela.

This decision of the USA will increase India's access to cheap crude oil. I am sure that India's strong relationship with Russia, increasing share of Russian crude oil in Indian basket and the recent visit of Indian Prime Minister Narendra Modi to Russia which was widely circulated in the world media by the Russian state media must have played a significant role in this decision. The US wants India to cut its crude oil import from Russia. So India must have argued that until and unless India has access to other cheap alternatives, how could India cut its crude oil imports from Russia? The US must have agreed and nodded to the application of Reliance Industries for waiver to enable India to explore more and perhaps better alternatives than Russia. It must be noted that the US had imposed sanctions in 2019. This was the time when India’s crude oil import from Russia started increasing which had increased to 40% of the total Indian crude oil basket!

Union Budget 2024 Aimed at Demographic Dividends

It has been 10 years since the government gave any tax relief to the middle class! It was expected that the Finance Minister Nirmala Sitharaman would be increasing the tax deduction limit under 80C of Income Tax Act from ₹2.5 lakhs to ₹4 lakhs or ₹5 lakhs along with standard deduction in the first Budget of Modi 3.0 with the purpose to increase the demand in the Indian economy which would lead to more jobs because of increased disposable income. However, the budget is not that generous as far as the deduction is concerned. I, along with other economists, was sure and still am that if only the standard deduction limit is increased, then it would not be able to achieve the dual goals of increasing economic activities in the economy as well as controlling the falling savings in the economy.

Why has the GST Collection Data for June 2024 not been Released?

On 1st July 2024, India completed 7 years of implementation of GST in the Indian economy. Initially it was a roller coaster ride with many states objecting on various issues along with implementation confusions and glitches. As a result many had expected it to fail but India has implemented GST smoothly across the nation. It is a great achievement as it has unified the Indian markets as far as taxation is concerned.

However, some concerns are being raised with July moving towards August! Every month in the first week, India has been regularly and religiously releasing the GST collection data. It was religiously followed till June 2024. But since 1st June 2024, GST collection data has not been released. None knows, why has it not been released?

People are now speculating about it with so many conspiracy theories. However, media reports suggest that the GST collection in the month of June 2024 was ₹1.74 lakh crores which is 7.7% greater than the collection of June 2023.

The Fall in the Share of the Households in the Capital Formation in India

Post pandemic, the share of the households in the capital formation in the Indian economy is falling. Household savings had increased increased significantly during the pandemic because of increased risk aversion of the citizens. The households post pandemic have used the savings and heavily borrowed to buy different classes of assets resulting in a fall in the household savings to 61% in financial year 2023 from 78% in financial year 2021. However, it should also be noted that the household financial liabilities in India had increased to 5.8% of the GDP which is highest since financial year 2012.

The fall in the share of the households in the capital formation is a cause of concern for any economy. For a developing economy like India with a share of more than 70% of the population below age of 25 years, it is even more worrisome. It would have a multifaceted impact on the overall well-being for the economy and the citizens.

The fall in the share of the households in the capital formation in Indian economy would lead to many problems like higher inequality in income as well as wealth, fall in consumption, slowdown in housing market, lower wealth accumulation and bad savings and financial health of the citizens in medium to long term which at present when inequality is at very high level in country.

Peculiar Case of Inflation in India

Someone asked me why do most of the non-BJP ruled states have higher fuel prices than that of BJP ruled states? Don't they realize that it'll be the reason for high general prices?

First of all, I wanted to ignore this question due to its political reason but after a while I decided to respond knowing the fact that the answer to this question is very peculiar. If I try to remain politically correct, there would not be a factual and satisfying answer to this question. It is not possible at all to be politically correct and answer this question both at the same time!

As a matter of fact, most of the non-BJP ruled states are charging higher VAT on petroleum products than the BJP ruled states. As a result, the oil prices are higher in Non-BJP ruled states. But it is not that simple. It is more complex than it looks at face.

Pesticide Use in India and the World

The Food and Agriculture Organization (FAO) of the United Nations has published a report with a title of “Pesticides Use, Pesticides Trade and Pesticides Indicators; Global, Regional and Country trends, 1990–2020”. This report is providing some very important insight about the global agricultural practices. The information is to some extent very surprising and frightful.

The following graph represents the pesticides Kilogram /Hectare used in different countries in agricultural activities.

Relationship of India with the UAE

In geopolitics and foreign policy making, things are often very long term, move slowly and look very deceptive and sometimes illusive also. From outside they often seem to move in the north direction but actually they lead in the south direction or might be in the east or west. It can be anything.

From the way the world perceives India today, it is very clear that India is doing well in the foreign policy making and positioning and placing its bets and people.

Relationship of India with most of the nations across the globe is improving dramatically. This is also true in the case of the United Arab Emirates (UAE). The relationship of India with the UAE has never been so strong the way it looks today and it is becoming stronger day by day. None could have even thought of it 10-15 years back but Modi Government has done wonders in the last ten years to completely change it by serving and securing the economic interest of UAE.

UPI vs. NEFT vs. IMPS: Which is Preferred?

India has many ways to transfer money supported by the Reserve Bank of India (RBI) and National Payment Corporation of India (NPCI) using banking platforms, BHIM app, payment banks as well as payment wallets. These methods are Unified Payment Interface (UPI), Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), Electronic Clearing System (ECS), Mobile Wallets, Prepaid Cards, Debit Cards, Credit Cards, Unstructured Supplementary Service Data (USSD), and AADHAAR Enabled Payment System (APES). At present, of all these ways, three ways of payment have turned out to be the most popular and those are UPI, NEFT and IMPS.

Visa Free Entry to Indians is Increasing

Rising economic might of India is increasing the importance of India in the global economy. It should be noted that the Indian economy is the fastest growing large economy in the world and is expected to become the third largest economy in the world by 2030 and probably a $5 trillion economy by the end of 2028 itself.

This simple but very important fact is forcing the countries of the world to review their overall public and economic policies in the matter of India to fit in the new reality. They are adjusting their policies at every level irrespective of the political spectrum.

India Needs to Increase Investment in Agriculture

According to The World Bank, 60% of the total land in India was found to be suitable for agriculture in 2021 against the world average of 38.4%. However, the share of cultivated land was only 53.7% of the total land in India of which 50.4% is arable and 3.3% is covered permanent crops, 24.4% of total land area is forest land and rest is used for other different purposes.

As per the definition given by Food and Agriculture Organization of United Nations (FAO), agricultural land covers only 38.4% of the world’s land area in 2011. However, only 10.9% of the global land area is arable that can be used for growing crops and just 1.2% of global land area is covered by permanent crops.

Micro ATMs are Helping Fill the Gaps

Financial inclusion has been a multifaceted problem for the whole world. The whole world is facing difficulties bringing in people in the formal financial system. Even the developed countries cannot claim to have brought its citizens into the formal financial system. And when it comes to a developing country like India, financial inclusion is a herculean task. However, India’s performance in bringing her citizens into the formal financial system in the last decade is really remarkable.

A number of initiatives and schemes such as Jan Dhan Yojana to Pension Yojana to Mudra Yojana etc. have been started by the central government in India over time to bring in people in the formal financial network but still a long distance is yet to be covered. There are crores of individuals who are still not part of the formal financial system or cannot access the formal financial system. Though, the government has been trying to use every possible initiative and technological advancement to advance financial inclusion in India. ATMs have also been used to increase financial inclusion in India especially in rural India.