Why India’s economy stays steady as West heads towards financial downturn
With the US, the EU and much of the Western world poised for an economic recession, many economists are puzzle on why India continues to post solid economic numbers, suggesting that India appears insulated from global economic shocks. To understand why India, It is important to understand what caused global recession.
With the outbreak of the Covid-19 pandemic in early 2020, when most countries imposed restrictions on movement affecting businesses and thus incomes, the spillover to supply and demand dynamics devastated even the most advanced economies. Countries are force to take urgent macro-policy measures to combat this sudden crisis. Countries tried to find a political solution according to the basic theories promoted by the famous economists John Maynard Keynes and Friedrich von Hayek. Both published their work in the mid-1990s with different approaches.
While Keynesian theories advocated greater government spending in times of crisis to stimulate consumption, Hayek’s work theorized that heavy government holdings lead to long-term stagnation by interfering with natural market forces. Most countries followed the Keynesian approach of massive government intervention through massive spending in the form of cash outlays and money in people’s pockets. They hope that such measures will stimulate demand and boost the morale of companies to hire more people. In retrospect, the idea appears to have been a completely miscalculated move, as stimulating the economy on such a macro scale leads to inflation followed by a slowdown. Indian economists, believe the way out of a once-in-a-century crisis like the Covid-19 pandemic is to adopt policy measures that are a combination of both theories. If we were to continue with the Keynesian approach, given our population, filling a few billion pockets would put a huge strain on our investments. But, allowing nature to take its course with minimal government intervention, as Hayek preaches, can put our most vulnerable people in unprecedented situations. Furthermore, Prime Minister Modi believes that putting cash in the hands of all Indians will be counterproductive – it will not generate the spending growth needed to stimulate expected demand due to its inherent nature. Indians to save on costs, especially during testing.
To appreciate the longevity of a pandemic crisis of this kind, many famous economists of the world (including Nobel laureates) have started preaching to us that the answer to the Indian economy should be a big package of re-inflation where we will be. spend a lot of money trying to stimulate the economy again in April and May 2020. But, instead of using all our ammunition at the start, PM Modi, on the balanced advice of his economic advisers, believes we are in a marathon that will take us into uncharted territory as opposed to a fast sprint. the end is in sight. Thus, we must prepare for unexpected surprises. India is aware of all the above facts and has adopted the ‘adjusted barbell approach’.
As described in Modern Economics, the modified barbell approach means that instead of a one-off, big-bang fiscal package, India will take slow, measured steps that include feedback from the country from time to time. . We are aware that changing the economy through higher government spending will lead to high inflation and even stagnation combined with low growth rates. The weakest part is, to ensure that no Indian went hungry, more than 80 million Indians were give grain. In finance (reducing the risk of non-payment). India started to open up, many economic indicators that began to show’s signs of growth.
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