It has been nearly a decade since I started writing about the Indian economy. It feels like an opportune time to assess its progress and analyse the shortcomings. A decade and three countries later, I find myself overwhelmed by what the emerging world had to endure during this period.
For starters, backlash against hyper-globalisation in advanced economies meant weaker growth in trade. Trade historically had served as a viable path for the East Asian Tigers to transition from emerging to emerged economies. This was followed by a major pandemic with significant short-term growth consequences. We are slowly finding evidence of even long-term effects due to the decline in human development indicators such as learning outcomes.
Furthermore, fiscal concerns have intensified; the massive expenditures required to navigate the pandemic have left creditors ready to extract their pound of flesh. Finally, the conflict in Europe and the resulting drive for continental rearmament have triggered fierce competition for sovereign borrowing. This surge in demand from advanced nations threatens to crowd out emerging market and developing economies (EMDEs), making the cost of capital prohibitively expensive.
A paradox of uncertainty
Needless to say that the last decade brought with it considerable uncertainty and too many unknown unknowns. It is therefore not surprising that I find myself sympathising with the policymakers who had to respond to such challenges in real time. There is some humility in recognising that certain decisions would appear to be wrong with the benefit of hindsight. Similarly, successful policy may seem as no-brainer as an ex-post thought, but little is known about the extent of discussion, deliberations, and disagreements prior to its adoption.
By all accounts, it seems that Indian policymaking has been agile and willing to make amends. That itself should be reassuring as overtime bad policies are more likely to be abandoned. Are there policies that I wish were abandoned sooner than later? Absolutely, and I am sure we all have a long list of those.
But this column is not about a list of things I wish were done differently; it is about a paradox of uncertainty. Borrowing from F Scott Fitzgerald, the experience of observing this decade has been one of being ‘within and without’ — simultaneously exhausted by the global churn and enchanted by India’s domestic resilience. As found in a recent paper with Kajal Lahiri and Prakash Loungani, uncertainty in India has been on a secular decline since the early 2010s.
The decline in economic uncertainty in India stands in stark contrast to the global trend. As measured by the World Uncertainty Index, developed by Hites Ahir, Nicholas Bloom and Davide Furceri, global uncertainty began a steady climb around the middle of the last decade. Unlike their global uncertainty, they find that for India, economic policy uncertainty continued to decline prior to the pandemic.
Policy certainty through much of the last decade in India clearly contributed to reduced uncertainty. There is certainly a willingness to engage with the world on matters relating to trade with many trade agreements concluded over the last few years. There are many more that are under negotiation and hopefully will materialise over the coming year. Each of these agreements adds certainty to trade relationships, help forge closer partnerships, and build a more resilient supply chain network. Similarly, on taxes, there has been remarkable certainty, particularly as the government has largely focused on slashing taxes, both direct (income and corporate) and indirect (GST), rather than increasing them.
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The impossible trinity
Despite these hard-won victories in reducing policy uncertainty, the expected surge in private investment remains elusive. Meanwhile, the ‘impossible trinity’ has reasserted itself: it appears as if to preserve monetary autonomy and capital mobility, the RBI has allowed the rupee to bear the brunt of the adjustment. This year’s Economic Survey makes for somber reading, particularly for a generation like mine that thrives on instant gratification. There is a palpable disconnect here; while my generation seeks immediate results, this government has so far largely staked its legacy on delayed gratification, prioritising long-term asset creation over short-term consumption.
However, I fear a shift in the wind. If the pivot from capital expenditure to populism accelerates, the “certainty” we have carefully cultivated over the last decade may begin to fray. If we trade institutional patience for immediate handouts, my generation will eventually face a rude awakening, a hard lesson in the reality that, in economics, the piper always extracts his pound of flesh.
Yet, the risks of such a total pivot remain low, given the deftness of economic management displayed over the last decade. The ‘within’ has held firm against a crumbling ‘without’ precisely because of this discipline. Here’s hoping that the institutional anchors we’ve built remain strong enough to resist the siren song of the present, ensuring that the next decade of Indian growth is defined not by the volatility of populism, but by the certainty of progress.
Karan Bhasin is a New York-based economist. He tweets @karanbhasin95. Views are personal.