The Indian government has been financially prudent during the last two years of Covid-19, avoiding the expenses and the accumulation of debts of others. He preferred to attract the excess capital that circulates in the world by pushing major changes in green energy and the digital space, and by opening the door more to foreign investors. He can claim some success. Investment flows have been large, foreign exchange reserves are overflowing and, in part as a result, the formal sector and start-up space appear healthy.
Assuming Omicron is a viral goodbye, this coming year will be one where rubber hits the road. The lapping is over. With inflation soaring globally, the world’s central banks will now end money printing. The largest source, the United States Federal Reserve (US), will do so by March. As this financial ebb continues throughout the year, many emerging economies will collapse. India will suffer, but Prime Minister (PM) Narendra Modi’s continued reforms during the pandemic should mean India will handle the tantrum better than most.
A recognition that Modi used his political capital to make tough economic choices that many world leaders have fled will be more evident as 2022 unfolds. Not that there won’t be bad news. India will be grappling with higher inflation and high oil prices even as it accumulates decent growth. His herd of unicorns will begin to thin out. But, after a quarter of waiting, investors, national and foreign, should start betting big on India again.
There are a few things that are likely to support this positive scenario.
The first is an expectation of geopolitical calm. India’s most dangerous strategic rival, China, awaits its year of consolidation. Xi Jinping wants to be confirmed for a third term next winter. He earned points for breaking down the tech and real estate oligopolies that have hampered China’s future growth. But, as Modi can attest, such actions are short-term economic brakes. Xi will seek to ease the Chinese economy until his re-election is confirmed later in the year. Border battles and the losing Belt and Road initiative are ill-suited.
Pakistan is essentially a danger to itself. He did exactly what an emerging economy shouldn’t have done in recent years. Prime Minister Imran Khan made no reforms and complicated business life. Its economy is an indicator of the high prices, low growth and debt problems that will affect many other developing countries. Pakistan’s great success in 2021, the resurrection of the Taliban regime, will be next door to hell: an exporter of refugees, heroin and terror.
The larger geopolitical landscape will be about turning language into action, especially in strategic technology. The two Quads, the Australian Submarine Triad, and the US-sponsored New Indo-Pacific Economic Framework have one feature in common: launching negotiations on future technology standards, investment, and development. Much of it has been described in documents, and the statements don’t mean much.
This year, it will be about filling in the details, figuring out how exactly the emerging camps of the United States and China can set up parallel networks for artificial intelligence, 5G, quantum computing and products. new generation pharmaceuticals. The result will be a year of silent buzz and minimal fireworks – except in parts of the world outside of these technological alliances. The nerds will dominate the bargaining tables, not the generals.
At home, the most important tasks Modi will face will be to avoid a setback in the Uttar Pradesh election and restore consumer confidence among the lower quintiles of the population.
The election, increasingly uncertain as it becomes a bipartisan contest, is necessary if he is to make any last-minute adjustments to the economy before the campaign begins for a third term. The electricity sector reforms stand out as they would provide external financing for India’s green transition. A much more difficult task will be to restart the urban informal sector, probably the one most ravaged by previous reforms and blockages. Again, the theme will be policy consolidation: less roller coasters and smoother navigation.
The icing on the cake of 2022 would be proof that the Modi government’s new trade policy exists. New Delhi hopes to complete its free trade agreements with the United Arab Emirates, Britain and Australia this year.
These will be new type of trade agreements – more focused on services, immigration and technology, less on agriculture and manufactured goods. The budget may need to signage with reduced rates.
These trade deals will be smaller and less ambitious, but will reflect what will likely be the new global standard for trade negotiations. If these merge successfully with the new manufacturing incentive programs, 2022 will be as much the start of India’s new growth story as the end of a pandemic.
Opinions expressed are personal