By K Raveendran
It was a leap from crisis to crisis, each more disruptive and destructive than the next. The pain and suffering people had to endure to change their demonetized notes in the wake of Modi’s midnight demonetization was unprecedented. Another overnight move, the introduction of the half-baked GST regime, drained the economy as the disruption forced a large number of small and medium-sized units to cease operations.
When it finally started to look like a new normal was on the way, came the Covid pandemic, the immobilization phase, another ill-timed decision that robbed millions of their livelihoods and wiped out demand from the economy because people didn’t have the money to buy anything. to buy. This was followed by the great journey home, affectionately called the Reverse Migration, which exposed the most inhumane face of the administration as it seemed to care little for lives lost on the roads and railways, as well as hunger and thirst. Only after the weight of public opinion forced the courts to intervene did the authorities restore their lives. The pandemic brought the economy to a standstill, just as life was standing still.
After two years of putting things back in place, comes the Russian invasion of Ukraine, which has plunged the global economy to a new low. The war continues to have devastating effects, not only in the conflict zone, but in every part of the world, where vulnerable populations are hardest hit. Supply chain tensions, inflation, soaring commodity prices, coupled with shortages in some of them, have converged with other economic concerns to create another unprecedented crisis for the world, apart from geopolitical balances threatening to go awry.
There is a global food crisis looming. The Ukraine-Russia region plays a vital role not only as an exporter of primary commodities such as wheat, but also as one of the main suppliers of fertilizers worldwide. According to McKinsey, the calorie intake of tens of millions of people — possibly 60 to 150 million by 2023 — is at stake.
Although India is far outside the conflict zone of Ukraine, it is also caught in the vicious circle. Fuel prices have been steadily rising, and petroleum marketing firms may need to raise prices further to make up for their past “losses” from a freeze that came into effect over their relationship with central government. Rising fuel prices has a ripple effect, affecting any economic activity and increasing inflationary pressures.
According to the latest data released by the Union Department of Commerce, the wholesale price index (WPI) price increase rose to a 30-year high of 12.96 percent in FY22, thanks to rising commodity prices and a low of 1 .3 percent in FY21. The last time wholesale inflation reached such high levels was three decades ago. WPI-based inflation stood at 14.5 percent in March — a four-month high — compared to 7.89 percent in the same period a year ago. In February of this year it was 13.11 percent.
High inflation is mainly attributed to price increases in crude oil and natural gas, mineral oils and base metals due to disruptions in the global supply chain caused by the conflict between Russia and Ukraine.
And yet India outperforms many other countries in the impact of the Russian war in Ukraine and the resulting sanctions against Moscow and its aftermath. The embargo has led to significant price increases in many sectors, especially energy and food.
According to the IMF’s latest World Economic Outlook report, global growth is expected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than was predicted in January.
After 2023, global growth in the medium term is expected to decline to around 3.3 percent. War-induced increases in commodity prices and mounting price pressures have led to inflation forecasts for 2022 of 5.7 percent in advanced economies and 8.7 percent in emerging markets and emerging economies – 1.8 and 2.8 percentage points higher than forecast in January .
The Fund has lowered its forecast for India’s gross domestic product growth in FY23 from 9 percent to 8.2 percent, as higher commodity prices will weigh on private consumption and investment. However, this is better than most other countries, including the US, China and Japan. (IPA service)
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