In murky waters

2024 has been an eventful year for Asia in general and South Asia in particular. Elections have been held in Bangladesh, Bhutan, Taiwan, Nepal, Azerbaijan, Pakistan, Indonesia, Iran, Kuwait, South Korea, Maldives, Vietnam, Thailand, Mongolia, Syria, Jordan, Sri Lanka, Japan, Uzbekistan, Georgia and India. In Singapore, Lee Hsien Loong, Prime Minister of Singapore since 2004, is succeeded by former Deputy Prime Minister Lawrence Wong as prime minister, ahead of the next general election in 2025. Citizens of Russia, the United States of America and the United Kingdom have also elected their leaders in 2024

The Iranian President Ebrahim Raisi and Iranian Foreign Minister Hossein Amir-Abdollahian were killed in a helicopter crash near the Azerbaijan–Iran border. Israel has nearly destroyed the Gaza strip killing thousands of innocent Philistines. It has also killed major leaders of Hamas and Hezbollah.  On December 8, President of Syria Bashar al-Assad left Damascus after being overthrown, ending his presidency and the Ba’athist Syria regime after a total of 61 years. The Syrian opposition forms the Syrian Transitional Government as a provisional government. Last week, the South Korean President Yoon Suk Yeol’s powers and duties were suspended after Members of Parliament voted to impeach him, following his martial law declaration the previous week.

In January, Bangladeshi Prime Minister Sheikh Hasina won re-election in polls boycotted by the opposition. But due to a mass movement against her rule, Sheikh Hasina boarded a military plane and flew to India, on August 5, where she stays now. The new interim government, headed by Dr Younus, faces major challenges with law and order, retributive politics, and soaring expectations. In May, Maldivian President Mohamed Muizzu made good on a campaign pledge to expel all Indian troops from his country and won the election. In Pakistan Shehbaz Sharif now heads a coalition government of eight political parties as Prime Minister. Analysts fear that the Pakistan’s military has retained its role as a key powerbroker, and “will function as a junior partner to the military”. Sri Lankan President Anura Kumara Dissanayake’s leftist coalition has achieved a landslide victory in snap parliamentary elections in November this year. Dissanayake’s National People’s Power (NPP) coalition secured a two-thirds majority in parliament. Earlier, In the Sri Lankan presidential election held on 21 September 2024, Anura Kumara Dissanayake was elected as the ninth Executive President of the country. K P Sharma Oli was appointed Nepal’s Prime Minister for the third time on July 14 to lead the new coalition government.  Oli, 72, succeeds Pushpa Kamal Dahal Prachanda who lost the vote of confidence in the House of Representatives on July 12. President Ram Chandra Paudel appointed Oli as the new Prime Minister of the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML)-Nepali Congress (NC) coalition. In June, The National Democratic Alliance (NDA, Headed by Narendra Modi won 294 seats, more than the 272 seats needed to secure a majority but far fewer than had been expected. For the first time since the Hindu nationalist Bharatiya Janata Party (BJP) swept to power in 2014, it did not secure a majority on its own, winning 240 seats — far fewer than the record 303 it won in the 2019 election. Narendra Modi became the Prime Minister of India for the third term in a row. 

India: an emerging super power

2023 was a landmark year for India as it assumed the presidency of the world’s highest profile global economic assembly, the G20, The country’s growth rate of 7.2 per cent in fiscal 2022-2023 was the second-highest among the G20 countries and almost twice the average for emerging market economies that year. Impressed by India’s economic growth, the World Economic Forum, made a bold prediction, at the beginning of this year, forecasting India to  become the world’s third largest economy in the next five years and a developed nation by 2047.

As per the latest data, released by IMF as of November 4, 2024, India is the fifth largest economy of the world with the GDP of USD 3.89 trillion. Japan holds the fourth position with a GDP of USD 4.07 trillion. Germany holds the third position with a GDP of USD4.71 trillion. China with a GDP of USD 18.27 trillion is the second largest economy and the USA is the largest economy with a GDP of USD 29.17 trillion. To become the third largest economy India will have to outperform both Japan and Germany in the next four years. Considering the present economic condition of India, which is not very encouraging, this dream of becoming the third largest economy looks very challenging.

According to Finance Ministry’s Monthly Economic Review released on Wednesday, the Union government expects the economy to grow at 6.5 per cent in FY25 after a dull first half of the current fiscal, The GDP growth rate fell to a seven-quarter low of 5.4 per cent in the July-September quarter, down from 6.7 per cent in the previous quarter. Though the World Bank has been raised, in September, its growth forecast for India’s economy to 7 per cent for the current financial year (FY25), up from an earlier projection of 6.6 per cent, data from the National Statistical Office (NSO) highlighted a slight slowdown in GDP growth during the April-June quarter of this year. Growth decelerated to 6.7 per cent. The World Bank’s chief economist has suggested that  India should seek to push its potential growth from 6 per cent to 8 per cent by focusing on greater efficiency and economic freedom and quality education and by staying open to FDI and trade and improving women work force participation.

Reduced consumption expenditure –both by the government and the citizens is a major area of concern.  Against a total Budgeted Expenditure (BE) of ₹48.21 lakh crore, the expenditure in the first half of FY25 was ₹21.11 lakh crore or about 43.8 per cent of BE. Year-on-year inflation rate based on All India Consumer Price Index (CPI) for the month of October, 2024 is 6.21 per cent. Corresponding inflation rates for rural and urban areas are 6.68 per cent and 5.62 per cent, respectively. on All India Consumer Food Price Index (CFPI) number is 10.87 per cent (Provisional) for the month of October, 2024. Corresponding inflation rate for rural and urban areas are 10.69 per cent and 11.09 per cent, respectively. Very high rate of indirect tax (GST), which is by nature a regressive tax, has furthered the cost push inflation of India. Food grain wastage and pilferage is another example of poor practice of food grains. It is reported that between 2019-20 and September 2024, a total of 6.21 lakh metric ton food grains have been wasted due to non-availability of proper storage facility amounting to a monetary loss of Rs 18.23 billion. Most significantly hundreds of hungry citizens were deprived of their legitimate right to food.

India is observing ‘jobless economic growth’. According to the India Employment Report 2024, created jointly by the Institute for Human Development and the International Labour Organisation (ILO), India’s working population increased from 61 per cent in 2011 to 64 per cent in 2021, and it is projected to reach 65 per cent in 2036. However, the per cent of youth involved in economic activities declined to 37 per cent in 2022, reports the Forbes India. According to the latest data from the Centre for Monitoring Indian Economy (CMIE), an independent think tank, the unemployment rate in India stood at 7.8 per cent in September 2024, a decline from 8.5 per cent in August 2024. The labour participation rate fell from 41.6 per cent to 41 per cent, and the employment rate fell from 38 per cent in August to 37.8 per cent in September 2024. Unemployment rate was 5.4 per cent in 2008, 5.44 per cent in 2014, 5.27 per cent in 2018, next year it rose to 8 per cent and in 2023 the unemployment rate was 8 per cent. India is a classic case of stagflation with high rate of both unemployment and inflation.

India’s trade deficit has widened by 18.4 per cent year-on-year from April to November, as per IDFC First Bank’s calculations. Meanwhile, outflows from equity and debt are around USD 10.3 billion this quarter, reversing from inflows of USD 20 billion in the previous quarter, writes Reuters. That combination, according to economists, has resulted in a BoP deficit in the current quarter. The BoP is estimated to be USD 20 billion to USD 30 billion this fiscal year, compared to a surplus of over USD 60 billion in the previous fiscal. The Indian rupee hit a lifetime low for the seventh straight session on Thursday. The rupee dropped to an all-time low of 85.2525 per U.S dollar. It has lost 1.74 per cent since the beginning of October and is headed for its worst quarterly performance since July-September 2022.

In 2024, Foreign Portfolio Investment (FPI) outflows were recorded during the months of January, April, May, October, and November. The drastic decline in FPIs flow, in 2024, stems from a combination of global and domestic factors. For example a series of stimulus measures introduced by China to bolster economic growth, making its equities increasingly appealing. In addition, heightened geopolitical tensions, particularly the Israel-Iran conflict, increased risk aversion, pushing investors toward safer assets. Till December 24, FPIs have made a net investment of over Rs 5,052 crore in the Indian equity markets and Rs 1.12 lakh crore in the debt market. This follows the extraordinary Rs 1.71 lakh crore net investment in equities in 2023, driven by optimism surrounding India’s resilient economic fundamentals, reports The Economic Times.

Another major area of concern for the Indian economy is slow growth of the manufacturing sector and closure of micro small and medium enterprises (MSME). In a written reply, the minister for micro, small and medium enterprises (MSMEs) Jitan Ram Majhi told the Lok Sabha, on Thursday 25, 2024, that out of the million registered MSMEs, 49,342 have closed during last ten years, resulting in the loss of 317,641 jobs. Off these a total of 10,655 micro, small and medium enterprises (MSMEs) shut down in 2022-23; the highest   in the last four years. The Union Government’s flagship Production-Linked Incentive (PLI) scheme to boost domestic manufacturing has been a mixed bag so far. Till March 2024, the PLI outlay for these 14 sectors added up to Rs 1.97 lakh crore, and the scheme attracted as many as 755 successful applicants including micro, small and medium enterprises (MSMEs), and private investments of Rs 1.23 lakh crore. Six of the 14 PLI schemes including textiles, solar modules, IT hardware, automobiles, advanced chemical cells (ACC), and specialty steel, are relatively in the slow lane. Others, including food processing and mobile phone manufacturing, appear to be well on track to meet the targets set at the time the schemes were announced, reports the Indian Express.

India and its neighbours

India has 15,106.7 Km of land border and a coastline of 7,516.6 Km including island territories. India has land borders with Bangladesh, Bhutan, China, Myanmar, Nepal, Pakistan and Afghanistan (border with PoK). Sri Lanka and Maldives share a common coastline with India. One of the major breakthroughs in Indo-China relations is the military standoff between the two countries, triggered by the violent confrontation in the Galwan Valley in June 2020, has ended. In late October 2024, India and China made a cautious but significant move to de-escalate their on-going border dispute along the Line of Actual Control (LAC). The two countries announced they would pull troops back, dismantle temporary infrastructure, and resume pre-2020 patrols in contested areas in eastern Ladakh. China is the largest trading partner of India.

After the exit of Sheikh Hasina, India has developed a bad relation with Bangladesh –its long trusted friend and trade partner. Moreover civil war in Myanmar has intensified in recent years and the India Myanmar border has come under the control of the Arakan Army- a non-state armed insurgency group. Over 1.2 million stateless Rohingyas  in Bangladesh have made the situation very volatile. Meanwhile Pakistan Bangladesh relation has improved and Pakistan has decided to buy 40 fifth generation fighters from China. Meanwhile it is reported that China has encroached few kilo meters of strategic land in Bhutan. Pro Chinese Communists are running the governments of Nepal and Sri Lanka.  All the Indian neighbours, including Maldives, have become partners to the Bridge and Road Initiatives (BRI) initiated by China. India has become isolated in its neighbourhood.

In Table 1, we have compared India’s status with respect to its neighbours (baring Afghanistan and Maldives due to paucity of data) on few socio economic parameters. The parameters are self-explanatory and indicate where India stands.

The World Economics Inequality Index is on a scale of 0-100, a high value indicates a more egalitarian society - and a low value suggests a lot of the national income is in the hands of very few. Here India’s status (very poor) is worst among all the countries.

China is one of 22 countries with a GHI score of less than 5. These countries are not assigned individual ranks, but rather are collectively ranked 1–22.

Observations

America’s national debt has surpassed USD 36 trillion, exceeding the entire economy’s size. Donald Trump’s policies on debt management, possible trade war with China, future of Middle east and Ukraine war will have a profound impact on the global economy in the coming years.

In almost all the socio-economic parameters, as mentioned in Table 1, India’s status is comparable to the least developed countries (LDCs) like Bangladesh, Nepal, Myanmar  et al. Unless these basic parameters are improved through effective intervention, attaining a ‘developed country’ status by 2047 looks grim.

India has created few enemies on its borders. For a peaceful coexistence with its neighbours India must revive, as the basis of its foreign policy the five principles of the Panchsheel Agreement which are: (i) mutual recognition of one another’s sovereignty and territorial integrity, (ii) Non-aggression pact, (iii) mutual non-interference with each other’s domestic affairs, (iv) equality as well as mutual benefit, as well as (v) coexistence in peace.

Views expressed are personal