Top 5 developments globally and how they can impact India

11 Jan 2023 , 05:15 AM

Above all, the world population touched 8 billion in the year 2022 and has grown exponentially from just 2.5 billion in the year 1950. Incidentally, India was the biggest contribution to the population accretion from 6 billion to 8 billion. As much as this is an opportunity, it also presents key challenges. Here is how the key events of 2022 unfolded and how it can impact India.

1. Russia Ukraine war was an revelation of New India

As much as the Russia war has been debated, nations have been divided. There is a perspective that US could have avoided luring countries in the Caucuses into the NATO. It was expected to disrupt peace in the region; and it actually did. The other perspective was that, irrespective of the provocation, the human rights violations by Russia were not justified. 

There is an element of truth to both these perspectives. However, the outcome was that, there was large scale destruction in Ukraine. The war disrupted the energy supplies and food supplies to Europe and the rest of the world and was one of the major triggers for inflation in 2022. However, it also highlighted a sharp shift in the Indian role.

There were several actions that showed that India was willing to put its self-interest above all else, which is what diplomacy is all about. Firstly, India refused to vote against the Russian aggression either in the UN General Assembly (UNGA) or in the UN Security Council (UNSC). With the US, UK, Japan and later Europe putting an embargo on Russian oil, India ended up making Russia its largest oil exporter. 

The reasons were purely economic as Russia was supplying oil 25% below market prices. That really allowed India to keep inflation in check in a difficult year. The Russian case was an example of India standing up firmly to its economic interests. It is also a picture of how things will shape up diplomatically.

China’s zero COVID and expansionism in 2022

There were two major stories about China in the year gone by and both made the global economies tad wary of a longer term association with China. Firstly, China kept its borders closed for all of 2022 only opening up in early 2023 after a gap of almost 3 years. The economy had become inward looking and output and growth had been severely impacted. 

To make matters worse, China was the centre of the global supply chain of most products and that got affected. The other big challenge was the sabre rattling with Taiwan, in a direct confrontation with the US. Most countries depend on Taiwan for their chip supplies and this made most global corporations fairly nervous.

The outcome was a gradual shift towards other options to sustain their manufacturing and supply chains. Not surprisingly, India emerged as a prime option and Apple led the way in moving part of its production to India. The Indian economy offered a robust ecosystem, a vast domestic market, deep investments in infrastructure, quality manpower and the ability to handle scale. 

The Production Linked Incentive (PLI) scheme came as a booster for this shift. While India, Vietnam and Thailand are being looked at as alternatives, India clearly has an edge due to its vast domestic market and ability to scale up rapidly. Its connectivity to the East and the West via established sea routes is an added edge.

Inflation and Recession were the themes of 2022

It was a year in which the US, UK, EU and even India went overboard tightening rates. The clear purpose was to control inflation, even at the cost of output and GDP growth. The bet was that once inflation was controlled; real GDP growth would automatically get a boost. However, repeated inversion of the yield curve showed that recession was round the corner for most of the developed economies.

In 2023, India is likely to grow at over 6.5% and still remain the fastest growing large economy. The low cost structure in India, fleet-footed policy changes, an accommodative government and a vast domestic market, enabled India to maintain positive growth even amidst global headwinds. The year 2022 proved that India could grow even in a weak global environment and that will be the underlying template for year 2023.

Taking the lead in handling climate change 

Year 2022 saw climate change staring the world in the face. It was not just about melting icebergs in the Arctics and marooned polar bears and penguins. It was about prolonged and severe summers in UK and Europe. It was about amazingly low temperatures during winter. It was about rising sea levels that was threatening to submerge land masses and displace people by the millions. In this situation, India was one of the few countries moving rapidly against climate change. 

India has already given a big push to EVs (electrical vehicles) and if the EV sales and the investments in the EV ecosystem are anything to go by, India is moving fast. India is heavily betting on green hydrogen and blue hydrogen which will change the phase of India’ carbon footprint and make it one of the most green commitments. India is ahead in the green race with investments of over $150 billion committed to green hydrogen and other eco-friendly strategies.

Global population crosses 8 billion

Amidst the euphoria of India growing amidst global recession and gaining from the China story, there is one big area of concern. The world touched the population level of 8 billion during 2022 and just looking back, the population has moved from just 2.50 billion in the year 1950. The world is likely to add another 2 billion to the world population by the year 2050. 

What is disconcerting is that India has been the biggest contributor to absolute population accretion in the last 20 years and it will join a host of Asian and African countries in future population spike. That puts a lot of pressure on resources, food availability, space, urban infrastructure and job availability. Above all, such a sharp rise in population would mean that India may always struggle in the race to boost its per capita income.

There is one more downside risk to handling this rapid rise in population. India already has the highest percentage of young people and that is normally seen as demographic dividends. However, a rapid growth in population and the absence of enough options to engage people actively and productively is not a good idea. It can have negative repercussions. 

To sum it up, global developments have been overall positive for Indian economy. The only concern is what happens if the demographic dividends do not yield the desired results. That remains the big risk factor for India in 2023!