With Global Instability, India Needs Harmony to Shore up its Economy

Political Upheavals in Different Countries (2024)

• South Asia
  • Bangladesh: Sheikh Hasina returned to power in January but was ousted by student protests in August, forcing her to flee the country.
  • Sri Lanka: September elections replaced traditional parties, bringing the National People’s Power to power.
• East Asia
  • South Korea: The ruling People Power Party was defeated by the Democratic Party in April.
    • The year ended with an emergency imposed by the president and calls for his impeachment.
  • Japan: The Liberal Democratic Party (LDP) suffered major losses in October, failing to secure a parliamentary majority even with its coalition partner Komeito.
    • An unstable coalition is now led by Prime Minister Shigeru Ishiba.
• Africa
  • South Africa: May elections ended the African National Congress (ANC)’s dominance, forcing it into a coalition for the first time.
• Europe
  • France and Germany: Right-wing parties rose dramatically in national and European Parliament elections in June.
    • French President Emmanuel Macron called snap elections to stem the right-wing tide, causing political instability.
  • United Kingdom: The Conservative Party suffered a historic defeat in July, bringing the Labour Party back to power after 14 years.
• United States: Donald Trump returned to power with a massive popular mandate, defeating Kamala Harris and securing a Republican majority in Congress.

Economic Context of India

• GDP Growth: India registered a GDP growth rate of above 7% in recent years, bouncing back strongly after the COVID-19 pandemic.
  • The World Bank revised India’s GDP growth forecast for FY 2025 to 7%, up from an earlier projection of 6.6%.
• Global Comparison: India is set to remain the fastest-growing major economy, outpacing China, which reported a 4.7% growth rate.
• Debt and Deficit: Debt-to-GDP ratio reduced from 9% to 82%.
  • The current account deficit is expected to remain low, between 1% and 1.5% of GDP, for the next couple of years.

Challenges

• Persistent issues include unemployment, stagnant exports, and low private and corporate investment levels.
• Inflation remains a concern, affecting consumption and demand.
• Public investment is robust, contributing significantly to GDP growth.
  • However, private sector participation remains underwhelming, requiring immediate remedial action.
• Political stability and social harmony are deemed essential for achieving economic objectives.
  • Historical examples from countries like China and Singapore illustrate that consistent growth is linked to stable governance.
  • In contrast, India has struggled to maintain high growth rates since independence.

Future Outlook

• Growth Trajectory: With consistent growth and reforms, India is expected to sustain its position as a global economic bright spot.

• Employment and Skill Development: Tackling unemployment through labour-intensive industries and expanded skill programs to equip the workforce for a digital future.
• Private Sector Revival: Policy incentives to encourage private sector and corporate investments.
  • Tax reforms and simplified regulations to boost industrial expansion.
• Global Positioning: Stronger Free Trade Agreements (FTAs) and strategic economic diplomacy to diversify export markets and reduce dependency on traditional partners.
• Social and Political Stability: Maintaining social harmony and avoiding disruptions to economic activities are considered essential to achieving sustained growth.

Key Drivers for Growth

• Public Infrastructure Investments: Continued focus on roads, railways, energy, and rural development.
• Export Diversification: Strengthening global trade ties to support manufacturing and export growth.
• Startup Ecosystem: Leveraging innovation through programs like Startup India and focus on emerging sectors (AI, fintech, and renewable energy).

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