Expect more economic pain in 2023

Ashraf Engineer


Hello and welcome to All Indians Matter. I am Ashraf Engineer.

By all estimates, 2023 is going to be a tough year on the economic front. The latest, and perhaps the strongest, warning has come from former Reserve Bank of India Governor Raghuram Rajan. He didn’t sugar coat things when he said that India would be lucky if it managed 5% growth next year. That 2023 will be tougher than 2022 is now a common refrain, no matter who you ask. Rajan said, referring to the Ukraine conflict: “Growth is going to slow in the world. People are raising interest rates that bring down growth. India is also going to be hit. India’s interest rates have also gone up but Indian exports have been slowing quite a bit.” India is struggling to achieve high growth as it faces a wide range of challenges, from rising interest rates in the US – which is being mirrored by the RBI here – to ballooning deficits. The rupee is well below the 82-mark against the dollar and inflation is likely to be 6.8% this year. Coming back to Rajan, the interview with Rahul Gandhi, in which he voiced his concerns, is a masterclass in making economics and policy relatable to the common citizen. I’ll put the link in the show notes. But here’s the question: how does a slowing economy impact you?


Let’s get some economic perspective first. Rajan isn’t the only one predicting lower growth. Goldman Sachs also lowered its forecast for India, citing slowing consumer demand and higher borrowing costs. It predicted that GDP would grow only by 5.9% in calendar year 2023 from an estimated 6.9% this year. “Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand,” Goldman said in a report. It sees a pickup in the investment cycle towards the second half of 2023.

Rating agencies Crisil and Icra also revised down growth projections for the current fiscal and the second quarter. Crisil downgraded India’s growth forecast to 7% while Icra pegged it at 6.5% for the second quarter of FY 2022-23.

There are various reasons attributed for this, from a global slowdown that is impacting exports and industrial activity to mixed crop output revealed by advance estimates of kharif production and higher input costs for many sectors, which includes soaring fuel costs.

Falling exports have affected domestic industrial output too; for the first time in more than two years, exports plunged more than 25% in October. The Index of Industrial Production has been on a downward trend since July 2022 for export-linked sectors and that could intensify in 2023.

Rajan had an interesting take on how we look at growth. He pointed out that the problem with growth numbers is that you have to understand what you are measuring them against. “We had a terrible quarter last year. And, if you measure with respect to that, you look very good. So ideally what you do is look before the pandemic in 2019 and look at now. If you look at 2022 vis-a-vis 2019, it’s about 2% a year. It’s too low for us,” he said.

And I agree. In my view, and this is echoed by many, anything less than 7% is not good enough for India. It impacts poverty alleviation, investment in public services and – most important of all – job creation. And let’s not blame it all on COVID-19. As Rajan pointed out, India was slowing even before the pandemic. It had gone from 9% to 5%, and that was because we didn’t implement reforms that would generate growth.

The other worrying pattern is the concentration of wealth in the hands of a few. Rahul pointed out to Rajan that a few people are getting rich and they can go into any business while the rest remain backward. These few people’s dreams are fulfilled while those of the rest are dashed. Rajan agreed that this is a major problem. Rajan said: “The poorest could get ration. They get everything. The rich didn’t suffer any difficulties. Those in between – the lower middle class – had to lose a lot. They lost their jobs. Debts went up. We should look at them. Because they have suffered a lot.”

Coming back to growth performance, Rajan said that India’s exports will reduce. A lot of this is because of the lack of a stable policy, or policy predictability, as he called it. And this is where Bangladesh has scored over India when it comes to textile exports.

Small businesses, especially, need support. For them, the path to growing big is full of obstacles – from taxes to lack of credit. Rajan explained that, when the companies are small, there are some benefits and they stay under the radar of the government instead of being helped by it. As soon as they grow a little, the government takes away those benefits and there is no incentive and, in fact, there is a cost to growing bigger. The better approach would be to let the companies avail of the incentives for, say, five years more. By then, they get big enough to do well without the incentives.

Let’s talk now about how slowing growth will impact you:

  • First, it erodes the standard of living because incomes shrink or are lost and prices rise
  • Inequality widens as industries shut or layoffs increase or pay cuts are enforced
  • The government earns less tax revenue, which means there is less to invest in public services like healthcare and education as well as infrastructure
  • As a result of this, the government needs to borrow more money and this results in interest rates rising, thus making credit even more out of reach for businesses – especially small ones. This is why your EMIs could rise, too, if you have taken a loan for a house or for personal reasons
  • Productivity falls and so does consumer demand

Perhaps we should leave the last word to Mahua Moitra, Trinamool Congress Member of Parliament, who stood up and spoke much-needed truths to the government in Parliament. Terming the Centre’s claims on the economy and provision of basic amenities as “falsehoods”, she said: “Falsehood flies and truth comes limping after it.”

She cited National Statistical Office data on manufacturing to challenge the government on its claims of great performance. She pointed to the slipping industrial output that I mentioned earlier and underscored that the manufacturing sector is the biggest generator of jobs and that has contracted to 5.6%.

Sawaal yeh nahi hain ki bastiya kis ne jalaayi. Sawaal yeh hai ki paagal ke haath mein maachis kis ne di,” she thundered. She said earlier: “This government and the ruling party coined the term ‘Pappu’. You use it to denigrate and signify extreme incompetence. But the statistics tell us who the actual Pappu is.”

2023 will be tougher than this year. It need not be, but we simply don’t have the calibre of someone like Raghuram Rajan in the driver’s seat to steer us through the tough times.

Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@www.allindiansmatter.in. Catch you again soon.