Time for the Indian (growth) elephant to start dancing

THOSE terms of endearment describing India's unhurried economic growth are past their use-by date. The image of a plodding "elephant" and slow "Hindu" rate of growth of the 1990s needs a makeover by comparing it, perhaps, with Clint Eastwood's fast-paced spaghetti Westerns.

One global consultancy believes that the country's future economic growth could be "good, bad and not-so-ugly", evoking memories of the 1966 Clint Eastwood movie, and appropriately linking the economy with the pursuit of wealth in The Good, the Bad and the Ugly which was the third part of the "Dollars Trilogy" - after A Fistful of Dollars and For a Few Dollars More.

The global consultancy, Deloitte, was right on the money when it declared in a December 2020 report that it expects India's gross domestic product (GDP) to rebound to 11 per cent in fiscal year 2022 (the period from April 1, 2021 to March 31, 2022), after contracting in the 2021 fiscal year.

Long gone are the days when the phrase "Hindu" rate of growth was employed to describe a long period of stagnation from the 1950s to the 1980s, when the economy grew at about 3.5 per cent annually, prior to the economic reforms of 1991 that belatedly unfettered the country.

The depiction of the Indian economy as a slowmoving elephant is also inappropriate. Two years ago, the International Monetary Fund changed the narrative to an "elephant that was starting to run", with the economy growing by 6.1 per cent in 2018-2019. Economists are now wondering when the elephant would start dancing and become the next growth miracle.

So, just how good is India looking? Quite pretty, as people are spending during festivals, splurging on cars, and on purchases of finished steel products, and things are looking up due to higher goods and services tax collections.

Are there any bad signs? There remain lingering uncertainties about how long it would take for consumption to become sustainable, as high Covid-19 infection rates are holding back many consumers from spending on travel, entertainment and leisure.

INCREASING CONSUMER CONFIDENCE

But India's outlook is really "not-so-ugly", says Deloitte. The news that several new vaccines may soon be available should have a positive impact on consumer confidence. The restrictions on mobility and social distancing have meant that people have been saving more, and after consumers are more confident about venturing outside, the pent-up demand for goods may explode.

In turn, to keep pace with growing demand, companies will have to begin rehiring staff and invest more, after a prolonged period of falling investments which had depleted inventories. The government's stimulus packages are also expected to shore up industrial production and consumption.

There are three scenarios in the Deloitte report that show how India would keep looking good and make sure that its outlook does not turn "ugly". Scenario 1 has the economy rebounding strongly in fiscal year 2022, as several effective vaccines should become available and as the spikes in infections may start declining from June 2021, while total active infection cases should begin to come down by August and there should be no further outbreaks.

Under Scenario 2, private spending would increase in order to fill the gap created by declining spending by the government, which has limited resources. With lower government spending, its reforms will need more time to have an impact. The economy, thus, would reach pre-crisis levels only in the early part of fiscal year 2023.

Scenario 2 sees infections in cities and urban areas remaining high despite intensive lockdowns. Under this scenario, a vaccine would not be available to the population till the end of 2021, and many people would remain sceptical of its effectiveness.

Nonetheless, the economy would notch up good growth for several quarters under Scenario 2, although at a slower pace than in Scenario 1. The impressive growth in fiscal year 2022 could, however, be deceptive because industrial production and revenue would still remain below the pre-pandemic levels. Remarkably, economic growth would range between 9.5 per cent and 11.7 per cent in fiscal year 2022, under Scenarios 1 and 2.

The most pessimistic outcome - a "not-so-ugly" forecast - is seen in Scenario 3, where the economy suffers several outbreaks and reinfections which may lead to a second major lockdown in March 2021, as the nonavailability of vaccines impacts the economy. With government resources focused on saving lives and jobs, the economy may just about reach pre-pandemic levels at the end of fiscal year 2023. However, the pessimism of Scenario 3 is unlikely to happen as the general trend is towards growth and recovery.

Indians are determined to put the past behind them. They wish to forget that the economy contracted by a historic 23.9 per cent in the first quarter of 2020-2021 due to the impact of the pandemic. The contraction, however, narrowed to 7.5 per cent in Q2 on the back of stronger consumption and tax collections.

Sustained economic revival is being spearheaded by the three drivers of the economy - job growth, a healthy rebound of the services sector and a sustained recovery in private consumption. Underlying these expectations are the government's policy measures and smart strategies of companies which should help the economy grow strongly from the next financial year onwards.

The old images of wildlife (plodding/dancing elephant), and a meditative approach to life (slow Hindu rate of growth) are now best consigned to the archives. Modern India needs new images that are relevant to its globalising economy, which could benefit from the fast pace of a spaghetti Western.