|India has to work hard if not miracles for Atma nIrbar Bharat and a sustainable future|
If one observes the past few weeks and months globally two things would immediately catch the mind. The first is the rising inflation and the second heat wave across Europe. While we will take the second issue separately here we are writing on the rising inflation and the changing economic shifts.
Indian Rupee has touched almost Rs 80 to a dollar which has started pinching the national exchequer and the citizens. India imports a large chunk of its energy needs and has been lucky to get Russian oil and gas at discounted rates. Yet its vulnerability is obvious and if not controlled cal lead to serious repercussions going forward.
The case of Sri Lanka is just an example for not only India but everyone. The nation has witnessed mass uprising and chaos putting the entire country into unprecedented protests and uprising.
in early july tens of thousands of angry Sri Lankans poured into Colombo, the capital, to chase President Gotabaya Rajapaksa and his government from office. They stormed the presidential palace, swam in the president’s pool and showered in his bathrooms. Rather than face the protesters, Mr Rajapaksa went into hiding for several days before fleeing on a military plane. He resurfaced in Singapore and at last tendered his resignation, putting the prime minister in charge.
The immediate reason for the political crisis is the disastrous economic situation facing the island’s 22m people. Sri Lanka’s economy has been in free fall for months. Tourism, a big source of foreign currency, ground to a halt during the pandemic and had just begun to recover when Russia’s invasion of Ukraine pushed up commodity prices, making imported fuel and food harder to afford. The Sri Lankan rupee has declined by 45% against the dollar since the central bank abandoned its peg in March. The government had spent months frittering away its dwindling foreign-exchange reserves on propping up the currency and servicing foreign debt, which had long become unaffordable. In April, it said it would stop paying its foreign-denominated dues; in May, it officially defaulted placing the nation into turmoil and unrest. (https://www.economist.com/the-economist-explains/2022/07/19/why-is-sri-lanka-in-turmoil)
Investors are rattled by rampant inflation and its dampening effect on global growth — the international Monetary Fund predicts the U.S. inflation rate will reach 7.7% this year and 5.3% in the euro zone. Inflation from agribusinesses, energy and supply chains is spinning unchecked . Inflation, supply chain along with pandemic has wide ranging disruption capacity. The Ukraine–Russia region is seen as one of a small handful of global “breadbaskets” (or major food producers) and plays a vital role not only as an exporter of primary staples like wheat, but also as one of the major suppliers of fertilizer worldwide. (https://www.cnbc.com/2022/04/21/from-food-to-inflation-the-russia-ukraine-war-has-a-global-impact.html).
Amidst the global turmoil India has also been a victim. Besides the Rupee devaluation another area that is hurting is dwindling foreign reserves. In a span of past few months the Indian foreign reserves has come down by a staggering 50 billion dollar. Needless to say if the Russian-Ukraine war continues, the foreign outflow will also follow placing the nation in a precarious situation. With the rising rupee on dollar , the RBI has been forced to intervene and selling dollar to control the Rupee resulting in net loss of critical foreign exchange. The fall in reserves now topped nearly $55 billion from its peak of $642.453 billion seen on September 3, last year , as on July 1. . The central bank spent more than $46 billion to defend the currency since February.
The major import bill for India is still the energy sector. The country’s import dependence has increased due to a steady domestic output decline. The nation produced 32.2 million tonnes of crude oil in 2019-20, which fell to 30.5 million tonnes in the following year and 29.7 million tonnes in FY22, the PPAC data showed. According to PPAC, India’s oil import dependence was 85 per cent in 2019-20, which declined marginally to 84.4 per cent in the following year before climbing to 85.5 per cent in 2021-22.
India’s main imports are: mineral fuels, oils and waxes and bituminous substances (27 percent of total imports); pearls, precious and semi-precious stones and jewelry (14 percent); electrical machinery and equipment (10 percent); nuclear reactors, boilers, machinery and mechanical appliances (8 percent); and organic chemicals (4 percent). India’s major import partners are: China (16 percent of total imports), the United States (6 percent), United Arab Emirates (6 percent), Saudi Arabia (5 percent) and Switzerland (5 percent).
A category wise list of imports is given here : https://tradingeconomics.com/india/imports-by-category.
if One observe there are some glaring points that need attention and are as follows:
1. China is still India;s major Import hub while the USA is a distinct second.2. Energy is the biggest import component.3. Smaller items like Plastic, copper, electrical /electronics , organic chemicals, Fertilizers , Iron and steel .machinery are also playing major role in India’s import bill.
Therefore if India has to become atmanirbhar and sustainble going forward it has to take certain steps with an urgency. The uncertain international situation, inflation and rising rupee against dollar with supply chain disruptions have huge potential to disrupt economies the world over with india being no exception.
To be continued:
In second part we will look into the steps that the country needs.
Dr Asheesh Shah