'Post-Covid Economic Recovery In India: Prospects And Risks' With Prof V. Anantha Nageswaran || IFMR GSB, Krea University

It’s been a year since Professor V. Anantha Nageswaran - former Dean of IFMR Graduate School of Business and currently Adjunct Professor of Economics at Singapore Management University & Part-time member of the Economic Advisory Council to the Prime Minister of India - left the GSB campus and moved to Singapore. However, his connection with the university remains firm. In a recent webinar with students of GSB, Prof Nageswaran discussed in great detail the current situation of the Indian economy, sharing his insights on what the future looks like.

Contrary to what most think, this decade’s growth turned out to be better. Dubbing the pandemic as the finale of the economy, Prof Nageswaran elaborated on the various signs about India’s cyclical growth and how it may project itself to be on the strong side but we must not get too overconfident.

Key Takeaways From His Lecture

Amidst the pandemic, numbers indicate that MSMEs are placed in relatively better positions. The COVID situation might not have impacted all the sectors equally, but we can see that there is still a large majority of MSMEs across sectors that are structurally strong and will be better placed in the current economic challenges.

IMF projects India’s GDP at 3 trillion dollars in the next decade. IMF also expects the Indian Rupee to depreciate every year, predicting a 5-6 % Real GDP growth in Dollars in the next 5 years. They also predict that there will be a 5-8 % growth in Rupee terms in the next 5 years. India’s per capita GDP growth is only 3.2% in this decade compared to last decade’s 12% growth (expressed in Dollars). However, from 2014-19, India doesn’t look too bad having done better than other countries such as the Philippines, Malaysia, and Sri Lanka.

If one were to look at why India’s per capita GDP growth was one of its worst, numbers showcase that the Indian Rupee appreciated by a high margin in the last decade while it depreciated to a great degree in this decade.  Keeping this in mind, if countries have a higher inflation rate, their currency will weaken to the extent of the inflation difference. So, if India’s inflation rate increases when compared to the USA’s inflation, the Indian Rupee will depreciate 4% every year compared to the US dollar.

The gap between China’s GDP and debt is fairly significant and seems almost unreachable. If the GDP is scaled by debt for both India and China, for every 1 dollar of GDP that India generates, the debt is 90 cents. But China has more debt when compared to India. Therefore, in the future, China would have to spend a lump sum in paying back the debt. It is believed that in the coming years, India has the potential to borrow and make investments, thus grow its GDP.

Because of China’s debt problem, India might attract the supply chain - one of China’s specialties earlier. But this may result in violence and cyber-attacks as retaliation.

Inflation transfers debt from creditors to debtors. So, countries with a higher debt try to increase their inflation and technically (not legally) default on their debts. This leads to the real interest rate coming down, like in the case of the UK where it fell to -15%.

FDI inflows are, however, increasing. Net equity inflows into the Indian equity stock market is much higher than what it was in the last 20 years. The challenge now is to deploy this capital in valued investments. Therefore, the Government of India is taking several steps towards this direction in the form of MSME norms and farm bills that are looking into removing barriers for investments.

In conclusion, Prof Nageswaran shared that while it has been difficult, post-COVID recovery is better than expected both in terms of health and macroeconomics. In the face of growth, the way forward is by focusing on being productive, efficient, and aware. In his words, we need to remove the fear of growing but must not stray too far that we end up over-investing. Instead, we need to make informed decisions and ensure that growth is beneficial and sustainable for all.

By:

The admissions committee of IFMR GSB Krea University