All the world’s a stage and we are mere players. So said the Bard. The economics stage has had its share of events that will be remembered for some time. As 2022 draws to an end, it’s time for a light-touch rewind of all that occupied the media and conference discussions during the year. One can list several dramas from the domestic and global arenas.
The domestic stage had a big part played by the high-decibel epithet “fastest growing economy". India’s economic growth rate of 6.8%-7% estimated for 2022-23 got projected as a signal of our arrival on the global stage. We have taken on presidency of the G20 as well. But all agree that growth will slow down further in 2023-24. Yet, we have euphoria, which is good. But where are the jobs and why has investment stagnated at 28-29% of GDP since 2015-16? Don’t worry, say pundits, as production-linked incentives will deliver ₹40 trillion in additional output. All’s well that ends well, then? Clearly, it has been a good year for humour too.
Second, the spotlight on a $5 trillion economy has moved on to $10 trillion, as the former is passé. With so many great things happening around us, the goal has enlarged and shifted further away. It does not matter that we have been talking of the former since 2018 and are still at around $3.25 trillion now. Besides, this is nominal GDP, not real, so high inflation can make it achievable. A mid-summer’s night dream?
Third, in the arc lights was India’s retail inflation rate, which has been the cornerstone of all arguments on the economy or policy. We don’t like it when rates of interest are increased, even though our savings get a more respectable return. We argue for lower rates so that industry, which is yet to take advantage of the low-rate regime which held for over six years now, benefits. Much like Beckett’s Waiting for Godot. But that was theatre of the absurd.
Fourth, one would have heard economists use the term ‘base effect’ almost every time data is released. This pops up whichever way the number goes, up or down, as the base is driving the direction. Clumsy explanation, but statistically cannot be contested. But what, really, is the situation: Is GDP of 9.7% in the first half good or bad? Does 5.9% CPI inflation mean it has finally come down, or is it high? As you can never really tell, it comes down to as you like it.
Fifth, the Global Hunger Report, which placed India low down the pecking order, evoked umbrage and was rubbished. We were at No. 101 last year and No. 107 now. It did not matter then, but matters now. We cannot be hungry if the country is growing the fastest and on the verge of becoming a $10 trillion economy. The study’s methodology was dissected and found to be flawed. Besides it spoke only of children being stunted and malnourished, not adults. That cannot be a true hunger report. Much ado about nothing, really.
At the global level, it was the same. First were sanctions which meant that one could not deal with Russia except if one were buying oil or gas, which Europe continues to do. Duplicity is the word that resounds here. Russia was cut off from Swift payments, which had a positive collateral effect in terms of countries working out trading arrangements in domestic currencies. All this did not quite work as Russia continues to do what it wants to. But the world suffered from high commodity inflation, which affected each and every country. Why did we have sanctions in the first place? A comedy of errors?
Next, global inflation made Jerome Powell a superhero. Everything the US Fed’s chief said affected all leaders of central banks. The view held earlier that monetary policy was a domestic phenomenon was a thing of the past. Everything the Fed did had to be taken seriously because it affected every country as investment flows became ever so volatile. So it was measure for measure.
Linked to the above was the US dollar, which for the first time crossed the parity level reflecting American economic strength that the Fed wanted to suppress. This meant that all other currencies went down together, diluting the export advantage of depreciation and pushing central banks to use forex reserves to steady currencies. It’s what happens when an apple cart is upset, a subject George Bernard Shaw alerted us to long ago.
Fourth, the crypto boom ended in a bust, with the FTX fiasco as its last gasp. As this involved an entrepreneur with the name of Bankman-Fried, irony was not lost. Crypto was always an enigma with perils, given that it was unregulated. High returns was its temptation, and in India, the government and regulators smelt trouble, though did not ban it. Conceptually, cryptocurrency is a Ponzi-like scheme, with no underlying value. So it was a tempest that was brewing.
The last was this year’s Nobel Prize, which former Fed chief Ben Bernanke shared for his contribution to finance. Helicopter Ben, as he was called, had propagated showering the economy with money in a crisis, as was done via ‘quantitative easing’, which was followed by other central banks. But taking it back is always a challenge, one left for successors to take on. ‘Quantitative tightening’ is what is being spoken of, but how does one do it, especially with a world disrupted by covid and moving towards a recession as the Fed fights high inflation? Can we ever get out of this conundrum? Remember the great epic Mahabharata and its famous chakravyuh? It’s easy to enter, difficult to exit. A Nobel Prize should be awarded to whoever can provide a solution for it. Happy New Year!
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