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CERTAIN OBSERVATIONS ON INDIA’S LINK TO WORLD GROWTH AND FACTORS OF MACRO STABILITY BASED ON ECONOMIC SURVEY 17-18 AND BUDGET 2018 ANNOUNCEMENTS

The observations set forth here are influenced by the Economic Survey 2017-18 (“ES 17-18”), some of the points captured directly from there and then assessed with respect to Intueri experience, research and solutioning for corporates.

World economy or global growth as of today is buoyant and accelerating. Indian growth in first half of 2017-18 was somewhat not synchronous to global buoyancy and decoupled from that, a situation which from second half took a turn and started becoming positive but it will be essential to foster an environment that sustains this coupling as long as the world growth is on a positive trajectory. The macroeconomic factors of India as of now indicate stability but further stability need to come from more tightening of the coupling with world trends. Acceleration of global growth should therefore encourage us to boost export and India should work out policies, reforms and create environment that encourages growth. The biggest source of upside potential will be exports as quoted by ES 17-18.

In one of the sections of the ES 17-18 it is mentioned that the State(s) which have been more effective in exports have prospered more than ones which have been solely or largely focused on within-State consumption or just inter-State trade.  This is a point which should be picked up by West Bengal(“WB”) and encourage and foster an environment of  cross border growth particularly for MSME or Agri products of WB.There need to be concerted effortsamong Governments at the Centre and the State, industrialists as well as policy makers to see how the present factors such as (i) ASEAN/Far East economic conditions, (ii) growth propensity and appetite of those countries, (iii) macro situation of international trade flow and political economics compelling countries to move more into ASEAN /SAARC /Far East countries, (iv) increased activities by all countries to boost multi/bi lateral trade or investment linkages with countries there, can be leveraged by an active and practical Act East policy helping East and/or North East States’ growth to take a long stride into export market because of their geographical, cultural, ethnical proximityto these countries  and therefore consequently make Indian economy take advantage of the world trends.

World Bank in its Global Value Chain Development Report (“GVCReport 2017”) suggested that GDP is not the sole indicator to reflect real, all encompassing nature of a country’s growth but there are other measures such as Gross Value Added (“GVA”) that need to be captured and countries playing more decisive and prominent role in Global Value Chain will show more sustainable and fundamental growth even if they are not the end producer or innovator of a product. The views of ES17-18 and GVC Report 2017 synergistically stress on the point of coupling the growth of a country more to World economy and resultantly play a very meaningful role in the Global Value Chain by enhancing export potential both through improved productivity and reduction of Non Tariff Barriers (lesser cost of doing business). In light of that emerging view on upside potential through exports and/or playing an effective role in Global Value Chain and geo political situation driving ASEAN/Far East, Eastern States viz.WB will throw up increased opportunities to industry and the Government should acknowledge that and therefore endorse it through supporting eco system .

This Budget 2018-19 did not touch upon the macro factors of the country, as of now, impending threats or uptake potential from emerging opportunities  – how to couple country’s growth more to world trend, how to protect economy against more persistently increasing oil prices (IMF predicts  12 percent higher in 2018-19),  how to protect the economy from the eventualities of a  potential asset correction (stock price correction) which may lead to sudden erosion of the  foreign capital from India, thus subjecting the macro stability, which  presently India is enjoying,  to a vey stressed condition. Hence, we suggest that there has to be a more foreign expansion or trade oriented economic and international relations based policy which can protect the country from the potential two or three adverse factors mentioned above and also in the ES 17-18.

There is a possibility that consumption may suffer due to increased interest rate as an outcome of tighter monetary policy which will be needed to combat the fiscal stress arising from higher oil prices and in such a case an economy depending solely and strongly on domestic consumption may have vulnerability. Budgetary and Industrial Policy(ies) should therefore try to mitigate or hedge against that vulnerability by bringing a strong export oriented growth policy and we feel we should encourage peninsular and border states of the country having direct linkages to the Eastern world to grow in exports and in turn secure the national cover against the risk of a probable eventuality of a decline in domestic consumption.

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