Prof. M K Bhat
Global economic conditions have deteriorated ever since the outbreak of Covid -19 Pandemic and continue in a state of shock till date. The world at present has got itself in the cobweb of Geo political crises, inflation, supply chain disruptions and economic slowdown. All the four conditions have formed a vicious circle and bear every potential to drift the world economy in recession. In order to come out of this vicious circle countries have to take mature decisions while taking global interests in due consideration.
The geo political shock led by America and its alliances got challenged by Russia and culminated in the current Russia Ukraine war. This war led to food inflation on the one hand and energy crises on the other. All countries importing grains are facing inflation because Ukraine is a major exporter of grains. The attempt by West to contain Russia by promulgating sanctions on it has its impact not only on other countries but it influenced their economies too. Germany is dependent on the Russia’s energy exports as Russia produces one fifth of global natural gas and significant oil too. It supplies one tenth of world production of aluminum and nickel. Countries need to realise that economies at present are interdependent rather than independent. Any move by one country gets its response in the earnings of the other country.
America also wants to curtail the influence of China; this has led to the worsening relations between the two great economic powers. Chinese expansionist strategies accompanied by post covid backlash has further derailed its economy. The autocratic decisions of the present regime, accompanied by economic slowdown has made certain business firms to think of relocating their units outside China. The things are likely to get further damaged due to the current turmoil on its home turf, leading to mass protests on Chinese roads.
Europe is reeling under energy crises due to war; the cost of living has increased and persistent high inflation is in existence. Countries are finding inflationary pressure; Euro zone is witnessing double inflation from 3 % to 6%. In America inflation has compelled the central bank of the country to follow tight monetary policy. All these conditions of the developed world have a spillover effect on other countries. The global economic situation in 2022 has deteriorated amid high inflation, aggressive monetary tightening, uncertainties from Ukraine war and lingering pandemic.
The ongoing global logistic disruptions started with the Lockdowns during Covid 19 pandemics, continue to impact business and consumers as the flow of consumer goods into key markets like North America, Europe, South east Asia and India have got hampered by the shutdown of ports in China, America and south Korea etc. The Ukraine Russia war further added to the already damaged supply chain ecosystem. Thirdly freight dealers are facing difficulty in their operations due to inflation, labor shortage, freight costs and shortage of drivers etc. It has influenced the demand of goods, led to inflation and bears a wrong impact on manufacturing sector. In India manufacturing sector contributes 17% to the GDP of the country while as the contribution of service sector contributes 53%. This makes the impact on manufacturing sector less visible however the shortage of many goods has been noticed in the market.
The fuel to the fire was added by economic slowdown in developed countries like America, European countries and China- the production hub of the world with more than 40 % of the world Exports. WTO estimated in oct 2022 that the global growth rate may slow down to 1% in 2023 from 3.5 % in 2022 amid global uncertainties. The forecast that USA real GDP is expected to grow at 1.8 percent year over year and in 2023 it is expected to be zero despite aggressive monetary tightening by federal reserve, Europe is likely to grow at a sluggish rate of 2.5 percent and China will grow at the rate of 4 Percent. Europe’s advanced economies have slowed down because of the shortage of energy and industrial raw material. All these things if not controlled have every chance of leading to recession.
The economic slowdown of some of the India’s major trading partners has curtailed the demand of Indian exports. In oct. 2022 the exports of gems and jewelry saw a decline of 14.64 percent to Rs 25843.84 crore (declined 22.44% in dollar terms to USD3134.85 million) as compared to Rs 30274.64 crore (USD404160 million) for the same period last year as per export promotion council GJEPC statement. The export of engineering goods, petroleum products, Gems and Jewelry, textiles has fallen. Jem and jewelry contribute 7% of India’s GDP, employs 5 million skilled and unskilled workers. This sector contributes 10-12% of India’s total merchandise exports, accounting for the third largest commodity share. The impact has not been severe because overall exports in oct. 2022 are estimated to be USD 58.36 billion, exhibiting a positive growth of 4.03 percent over the same period last year. The overall exports consist of both export merchandise and services.
India’s exports plunged 16.5% in oct, 2022, the first such decline in 19 months as demand crumbled in US and European union while imports grew slowest in 21 months. Among the major products export of rice registered $2.32 % during August 2022. It was mainly because of Ukraine’s failure to supply grains to the world. Exports from India fell to $ 29.78 billion in Oct. 2022 from $ 35.45 billion in the previous month, the lowest since Feb. 2021. A year earlier exports were 17% higher at $35.73 billion considering April to Oct exports rose 12.55 % to $ 263.35 billion as per ministry of commerce and industry GOI.
India despite global slowdown from 6.1% in 2021 to 3.6 percent in 2022-23, is likely to grow at the highest growth rate of 7% as per various forecasts. It will be the fastest growing economy in the world. This has become possible mainly by the domestic demand and strong economic base of the country. Shortage of energy stands as a big impediment in India’s growth as it imports three fourth of its energy requirements. India has come out with a deal with Russia to import oil at low prices in large quantities. This deal in itself was a bold move by our government and got the wrath of America and its alliances. India at present imports 20% of its oil requirements from Russia.
The improvement in global economy will depend upon; how quickly war comes to an end and how China controls its own people, maintains peace with neighboring countries including Hongkong? Its cordial relations with America. American attitude towards Russia, China and other countries. Besides geopolitical conditions countries of the world including India at present have to make a choice between economic growth and inflation. Arresting money supply will definitely curtail inflation but its impact on growth will be negative. The central banks of various countries including India have started monetary corrections. RBI’s escalation in repo rate will have a wrong impact on the growth of the economy. There is need of applying carrot and stick formula.
India can’t remain dependent on a few countries for its exports, it may have to explore new upcoming markets especially in North America, Latin America, and West Asia if it aspires to sell more to the world.
(The author is Professor Guru Gobind Singh Indraprastha University, Delhi)
Follow our WhatsApp channel
