After last year’s pandemic-induced economic collapse, the global economy is on track to make a synchronized—though unequal—recovery. A little over a year after disaster first struck, human ingenuity in the form of vaccines has mitigated its impact and accelerated the economic recovery.
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Global economic growth (GEG) for 2021 is expected to be 5.5% or higher, with emerging markets posting growth of over 7%. This will be the first synchronized growth since 2017, when global economic output rose 3.3%, and the highest in nearly five decades.
Each of the 27 emerging markets represented in the MSCI emerging markets index (MSCI-EM) will post a positive gross domestic product (GDP) change number for the first time since the aftermath of the Global Financial Crisis (GFC) in 2008.
Aided by gradual normalization in economies and significant monetary and fiscal accommodation in developed markets (particularly the US), large emerging market economies such as India, China, Taiwan and Bangladesh are expected to post strong expansion.
China’s economy rebounded earlier than others, with an eye-popping 18.3% GDP growth in the first quarter of 2021 over the same quarter a year ago. The total value of China’s exports rose by a staggering 38.7% in that quarter, year-on-year.
These enormous jumps reflect a base-effect, as China had shut its factories and locked down its cities during the early part of 2020. Measuring this first quarter growth over the country’s performance two years ago, exports grew by a relatively modest 15.3%, and the trend indicates deceleration. China’s challenge will be to balance the mix of growth in its construction and manufacturing sectors with growth in consumption.
Even as a pall of gloom lifts over the global economy, stark divergences across and within countries are becoming visible. Across countries, the economic decline and then recovery has been shaped by the severity of the pandemic, the ability of healthcare systems to respond, policy responses, on-going healthcare costs for impacted households, and how quickly supply chains have been able to resume normal operations.
Countries and sectors have varied widely on these metrics, resulting in a multi-speed and uneven recovery process. Many countries including India are dealing with the ill-effects of subsequent waves, which have necessitated restrictions on mobility and economic activity.
In some countries, including Canada, the US and China, household incomes have risen in 2020 due to fiscal support. In poorer countries, particularly those with limited fiscal resources, this effect is less pronounced, and in some cases household incomes have underperformed even large declines in GDP per capita.
In countries and segments where incomes have declined, vaccine availability is limited and resources are strained, the economic impact will linger for many more quarters. Only about half the world’s countries are expected to achieve their pre-recession per-capita peaks within two years, the lowest for any post-recession period in the last eight decades.
Stock markets have rebounded, leading an economic recovery in most markets. In local currency terms, markets in the US, Canada, Germany, Taiwan, Korea and India have advanced about 80% from their lows last March (in many cases to new highs). Indian indices are about 25% higher than their prior peak in January 2020.
These indicators signal strong confidence in an overall economic recovery and a comeback of corporate earnings. As economies and corporate earnings recover, central banks will begin to reduce their accommodation. The US Federal Reserve telegraphed exactly this at its June meeting last week.
The sustainability of this cyclical recovery also remains a challenge because frictional costs related to three major long-term drivers have increased. Global flows of trade, technology and talent now have greater restrictions than before, endangering long-term growth and increasing the risk of inflation.
For India, this cyclical recovery should provide a cushion to undertake reforms. India has one of the largest output gaps among emerging markets, estimated at about 6% of GDP. This should keep inflation within India’s targeted band for a while, allowing for policy action aimed at both the supply and demand sides of the economy.
The country faces two major challenges in the medium term. One, India must address the recovery’s unevenness while returning the economy to a balanced growth path in a few years; and two, it must fix balance-sheet crises in the banking, telecom and power distribution sectors.
Some sectors, particularly small enterprises and many segments of the country’s population in rural areas and arid patches, will require fiscal support. If this fiscal support has to come without a significant cost in terms of inflation, the fruits of the cyclical recovery will need to be more evenly distributed.
This will require further reforms in agriculture, infrastructure, education and health, and also a lasting solution to the problems that afflict the public sector of our banking system.
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- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)