INDIA is among the four nations in Asia that feature in the basket of ‘hot’ economies wherein the inflation rate is on the higher end of the spectrum, according to the research firm Nomura. Other economies are Singapore, South Korea, and Taiwan. This is apparent on the ground also with people complaining of being overwhelmed by the high inflation. According to a recent Reuters poll, India's retail inflation surged to an 18-month high in April. There has been a record hike in fuel and food prices. The situation has been worsened by the Indian rupee touching an all-time low against the US dollar. Every 5 percent fall in the rupee adds about 10-15 bps to the inflation. So, Rupee's continuing slide will further push up the prices of goods.
Another guage of the deteriorating health of the economy is the declining stock markets. Foreign investors have pulled out a whopping $19 billion from the Indian markets in this calendar year so far. On the contrary, the markets witnessed net inflows of $7 billion in 2021, $14 billion in 2020 and $19 billion in 2019.
One major reason for this is the ongoing war in Ukraine. As the war prolongs, the world economy is finding itself under increasing stress. The European Union has been the most impacted. The war has aggravated a shortage of natural gas that has already sent inflation up in most European countries. The bloc is now urging the Gulf countries to compensate for the energy shortfall as a result of the boycott of Russian oil.
Indian economy, as a result, could be severely impacted, although it is too early to predict how deep this impact would be. As things stand, the war has caused higher than expected inflation, supply chain disruptions and volatility in financial markets. And India can’t be immune to this for long if the war drags on. And this is happening at a time when the world economy was gradually recovering from the debilitating fallout of the Covid-19 pandemic. The countries were slowly opening up and letting the economy function normally. International travel was also returning to pre-pandemic levels. India was taking steps toward a self-reliant economy also called Atmanirbharta. This is expected to drive economic momentum and growth. The resumption of economic activity is also important to restore the millions of jobs lost to the pandemic.
More so, in India where the successive virulent waves of the pandemic have hemorrhaged the economy. In 2021, India’s GDP slipped by over 7 percent. The gaping dent in the GDP meant that lakhs of jobs were lost, a disproportionate number of them the people living at the bottom of the pyramid. Therefore it is incumbent on the world to come together to resolve the crisis in Ukraine and find a solution that addresses the concerns of all the parties involved.
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