The diversity of Indian Economy in current circumstances

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its bimonthly meeting on October 6. One of the primary arguments inside the MPC has been whether the inflationary rise is supply-side driven and therefore temporary, or systemic and so long-term. Many independent economists have stated that the latter is more likely. RBI governor Shaktikanta Das has been leaning towards the former argument. It’s a bit of a surprise that excess demand can also cause inflation, given that the MPC has frequently warned about the weakness of aggregate demand.

However, it appears that this is precisely what is happening in some industries. India’s coal-fired power plants, which provide more than half of the country’s electricity, are on the verge of running out of coal. Many variables are to play, including recent rains, flooding mines and power stations becoming lackadaisical with inventory protocol. The power and coal ministries are also attempting to avoid a blackout. The unexpected increase in electricity demand in recent months has been a primary catalyst for the issue. Part of this has to be pent-up demand as the economy returns to normal, with fewer Covid-19 cases, higher immunisation rates, and prosperous holiday season expectations.

There is something to be learned here. India’s economy is vast and diverse. This means that it is feasible to have seemingly different, even contradicting, issues in the economy. The blue-collar worker and the informal sector entrepreneur will almost certainly continue to experience an income and demand dilemma. Because worldwide value chains for commodities like microchips are clogged, the white-collar worker and his formal sector peers in firms may face a supply shortage.

Luxury carmakers, for example, are having difficulty filling orders. Then there are areas like thermal power plants, where the pessimism of Covid-19’s first and second waves appears to have sown the seeds for currently bungled supply-side management. Each of these issues is distinct, deserving of attention, and capable of causing severe harm if left unchecked. And the solution will require more than technocratic knowledge. Policymakers must seek the truth from the facts, not just one of two narratives. There are signs of recovery, signs of catastrophe, signs of a supply-side problem, and signs of a demand bottleneck. And in today’s India, all of these cohabit.

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