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A review of data released by the Government of India in November and December prompts a reassessment of India’s economic trajectory. Despite positive indicators suggesting a robust growth rate of 7.6% in Q2FY24, revised projections of 7% growth for 2023-24, controlled inflation, and a flourishing stock market, a deeper analysis reveals uncertainties embedded in recent governmental policies.

Ambiguities in Food Grain Policies

The government’s extension of the scheme providing free food grains to impoverished families for another five years, starting January 1, 2024, aims to assist 81.35 crore people. While offering direct relief, this decision poses challenges on multiple fronts. Procurement of wheat and paddy by central government agencies between 2021-22 and November 2023 fell, impacting grain reserves and inflating food prices. Concurrently, increased exports of wheat and non-basmati rice in 2020-21 exacerbated the imbalance in India’s food economy. The onset of summer in February 2022 reduced wheat yields, leading to a hasty wheat export ban in April 2022, further upsetting the market equilibrium.

Predictions of El Nino’s adverse effects on crop production compound concerns. The extended free grain scheme may force India into wheat imports, exacerbating economic burdens estimated at Rs. 12 lakh crore over the next five years, compounded by the government’s existing debt of Rs. 172 lakh crore. Moreover, the government’s ban on food item exports has raised disputes with WTO members like the United States, European Union, Canada, Australia, Switzerland, and New Zealand. These policies, designed to foster self-sufficiency, paradoxically create dependence and hinder job creation.

Financial Sector Uncertainties

Similar uncertainties loom over India’s financial sector. RBI’s directive on November 16 increased risk weights on consumer loans to curb unsecured lending, necessitating higher reserves and raising interest rates. While mitigating risks for banks, this move threatens to deprive vulnerable segments of society access to loans or subject them to exorbitant rates, exacerbating societal inequalities.

This directive also jeopardizes the role of NBFCs, which cater to financially fragile populations, potentially limiting access to easy loans and impacting their business operations. The government’s claims of a speedy economic recovery, evident in increased credit disbursal, face scrutiny given the implications of RBI’s directives, posing challenges for all financial stakeholders.

Indian Rupee’s Internationalization Challenges

Efforts to internationalize the Indian Rupee faced setbacks when the settlement mechanism between India and Russia stumbled due to limitations on Rupee’s international usability. Despite RBI’s initiatives to promote the Rupee globally, the abrupt withdrawal of Rs. 2,000 notes raised doubts about the government’s confidence in its currency, undermining foreign trust.

Uncertainty in the Energy Sector

India’s persistent power shortages, despite substantial power generation and coal reserves, persist due to political promises of free or subsidized electricity, straining financial health across the energy supply chain. Short-term measures like coal blending with imports exacerbate existing challenges, perpetuating a cycle of financial strain within power distribution companies and hindering coal production growth.

In conclusion, uncertainties in governmental policies—ranging from food grain distribution, financial sector regulations, efforts towards currency internationalization, and energy policies—underscore the need for transparent, coherent policies. A clearer policy landscape could have deterred the migration of high-net-worth individuals seeking stability in other nations.