Sprinting when world is limping

Will the Indian economy continue to remain in this sweet spot?

Unless the situation in West Asia really flares up after Hamas’s attack on Israel and energy prices increase significantly, inflation is unlikely to be a major cause for concern in the Indian economy (although this does not mean it will settle down at RBI’s target of 4% over the next year). And high-frequency indicators such as Purchasing Managers’ Index, direct tax collection data and quarterly employment numbers for the June quarter have all brought good news for the economy.

Does this mean there are no red flags on the economic front? Two points need to be made here. A 6.3% growth is good enough to make India the fastest growing in the sluggish world economy, but it is far from enough to generate adequate economic momentum to improve mass incomes and living standards. Economic policy must focus on raising India’s medium-term growth rate to levels which are at least a couple of percentage points higher. What can be done to ensure this?

Any discussion on this must begin with the acknowledgement of the fact that weak global economic growth also means weak export demand for India. This is bound to hurt domestic growth prospects. This underlines the importance of finding ways to boost demand at the bottom of the economic pyramid in the Indian economy. Any such strategy will have to confront the question of boosting agricultural incomes without stoking food inflation.