A measure of demand by USA consumers has hit all time low at a time which is seeing very high consumer price inflation, a paradox of sorts, creating a unique situation which can be termed as “Demand Destruction”. Each month University of Michigan publishes USA Consumer Sentiment Index. The consumer confidence measures were devised in the late 1940s which have now developed into an ongoing, nationally representative survey based on telephonic household interviews, and the index is normalized to have a value of 100 in the first quarter of 1966. This index helps to understand how consumers view their own financial situation and the economy, short-term and long-term.

The official release from the university states,”The final June reading confirmed the early-June decline in consumer sentiment, settling 0.2 Index points below the preliminary reading and 14.4% below May for the lowest reading on record. Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines. About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession……Consumers also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.”

Central Banks across the globe have been raising rates in a very aggressive manner, perhaps most aggressive in this millennium. Soaring Food and Fuel prices over last three month have posed high inflation problem in front of surprised central banks which have been pumping liquidity since Global Financial Crisis. Higher and adamant inflation level might have started due to supply constraints but demand for goods came at unprecedented speed too. Especially in USA where almost half of consumed goods are imported and increase in disposable income of lower income strata on account of covid relief fund distributed fuelled unprecedented demand for available goods. Covid induced social distancing norms meant much of this extra cash in hands could not be spent on services. The sudden surge in demand for goods and inability of producing at home meant windfall gains opportunities for shipping companies though. However painful the situation became due to runaway inflation, supply side ramp up is no where in sight for the biggest economy in the world. A measure of activities in US manufacturing and services, Composite Purchasing Managers Index, fell to lowest level in last 5 months too. With no surge in supply to match the unmet demand consumers are feeling low in confidence about their financial condition as well as robustness of the economy, i.e. needs of goods has to be withdrawn – Demand Destruction is here.

NRIs report price of gas in Bay Area spiking from around $1.3/gallon in March this year to current rate of around $6/gallon. The lingering conflict between Russia and Ukraine has thrown nagging challenges which accentuate the existing supply chain disruptions, causing food, energy and commodity prices being elevated, inflation to hit decadal highs and persistence of demand-supply imbalances. This globalisation of inflation makes it mandatory for the central banks across the globe to reorient and recaliberate their monetary policies. Emerging market economies are facing even bigger challenges from increased market turbulence, monetary policy shifts in advanced economies and their spillover effects, which slow the process of economic recovery in emerging economies like India as is seen by the GDP growth forecasts of World Bank, Moody’s Investors Service, S&P Global Ratings, Fitch, IMF, ADB and RBI.

The protracted conflict in Europe and the accompanying sanctions being increasingly imposed by the western world have kept global commodity prices elevated across the board, exerting sustained upward pressure on consumer price inflation, well beyond the targets in many economies. The ongoing conflict is also turning out to be a dampener for global trade and growth. The steps taken by the advanced economies are also leading to heightened volatility in global financial markets, causing corrections in major equity markets, sizeable swings in sovereign bond yields, US dollar appreciation, capital outflows from emerging markets like India. Globally, stagflation concerns are also growing, which also spurs volatility in global financial markets.

Navigating through difficult times makes it necessary to be sensitive to the new realities and incorporate them into thinking and actions. After much debate and discussions over all possible dimensions of macroeconomic situations and newer challenges being thrown upon by different geo-political and economic happenings globally, today the RBI took a unanimous decision to increase the policy repo rate by 50 basis points to 4.90% with immediate effect. Inflationary pressures going much beyond the upper tolerance level- a gradual, orderly and calibrated rise in repo rates, is something that the RBI is required to take account of, without losing sight of the growth requirements and disturbing macroeconomic stability. However, despite these challenging times, the Indian economy has remained resilient, ably supported by strong macroeconomic fundamentals and buffers. The recovery has gained momentum despite the pandemic and the conflict in Europe.

As the RBI is of the opinion that inflation is likely to remain above the upper tolerance band of 6% through the first three quarters of 2022-23. The reduction in excise duties on petrol and diesel will certainly help in mitigating the inflationary pressures to some extent, however further monetary policy measures appeared necessary to anchor the inflation expectations. According to the provisional estimates released by the NSO on May 31, 2022, India’s real GDP growth in 2021-22 is estimated at 8.7%. The level of real GDP in 2021-22 has exceeded the pre-pandemic (2019-20) level. The recovery in domestic economic activity also remains firm, with growth impulses getting increasingly broad-based. Manufacturing and services PMIs for May point towards further expansion of activity, corroborated by encouraging movements in railway freight and port traffic, domestic air traffic, GST collections, steel consumption, cement production and bank credit. While urban demand is recovering, rural demand is also gradually improving. The contact-intensive services related to trade, hotels and transport have also recovered substantially. Capacity utilisation in the manufacturing sector increased further to 74.5% in the fourth quarter of 2021-22, which is likely to increase further in 2022-23, which is sure to spur the investment activities. Government’s capex push, pick-up in bank credit, persisting growth in imports of capital goods, buoyancy in merchandise exports with double digit growth for the fifteenth successive month in May and high growth of non-oil and non-gold imports are the indications of a sustained recovery in the Indian economy. Hence, there appears no trouble even when RBI raises repo rates in a calibrated fashion.

As if Struggle of twin defecits of BOP and budget were not challenging enough for democratic governments, that triple whammy of post-pandemic systemic stress, price inflation and pay more on debts scenarios are here. Countries of South Asia seem to be exceptionally badly affected by these at the moment,except for India, whose deeply democratic values are not only giving it strength to manage the crises reasonably well at home, but also lend a helping hand to those in need of desperate help.

Economies like Maldives, Nepal and Sri Lanka lie largely dependent on tourism and remittances that dried up due to COVID-19 outbreak. And just when things were beginning to ease up, the Ukraine-Russia crisis caused a global spike in oil and commodity prices. This has caused such economies to face multiple simultaneous problems that include accelerating inflation, widening current account and budget deficits, fast depleting foreign exchange reserves making the nations unable to pay oil bills, and eventually protests and social unrest.

Political turmoil in Pakistan pales in front of looming economic crisis, as food prices are hitting record highs, the value of Pakistan rupee is tumbling uncontrollably, double-digit inflation, low foreign currency reserves and dangers of meeting a serious balance of payment (BoP) crisis. Nepal is also showing classic symptoms of brewing economic crisis as its Forex reserves plunged 18% since July 2021, enough to last for just six months of imports. Inflation is hitting a record high in 67 months due to crop loss due to last floods and war-induced inflation.

Afghanistan has gotten into the hold of Taliban in August last year, who have not shown any intent of changing their ideological bearing on gender and minority issues. Similarly, the iron hold of the Myanmar generals on the nation does not seem to be getting loose anytime soon. The history of Burma weighs heavily on its present despite an educated young populace of digital age.

Sri Lanka stands broke. So much so that Mahinda Rajapaksa, who has long been seen by a large section of the majority Sinhalese as a national Hero who defeated the Liberation Tigers, had to vacate his Colombo Residence, for safety from protesters. The island nation is in turmoil amidst crippling inflation due to the worst economic crisis the country has ever seen since it gained independence in 1948.

Amid such a fiery turmoil in the region, India is trying to help neighbours with resources and aids. It has been promoting a futuristic and planning-oriented economic approach which focuses on nation-building through development, self-reliance in all sectors, modern and innovative economic solutions, digital connectivity, and security solutions.

India has reported inflation at a 17-month high of 6.95%, the US inflation rate hit the 8.5% mark, a four-decade high, and in the UK, the inflation rate surged to a three-decade high of 6.2% in March 2022. With such high inflation rates, central banks are expected to continue more aggressive interest rate hikes in order to control rising prices, a move that could also prompt more market sell-offs, and making loans and economic activities more expensive.

Post pandemic world was surely not ready for Russia-Ukraine crisis. Oil prices crossed $100 a barrel in few days since crisis started unfolding and jumped to even $139 a barrel at one point, the highest level for almost 14 years, while wholesale gas prices for next-day delivery more than doubled. Such a massive surge in energy-prices is sure to negatively affect the global economy as Russia, the world’s third largest producer and exporter of oil after USA and S.Arabia meets 10% of global demand. The European continent is most vulnerable as Russia caters to around 27% of oil and around 40 % of the natural gas needs of the region. Germany which has abandoned nuclear power and relies heavily on Russian gas, has great stakes.

Russia is also a good supplier of grains, vegetable oils and industrial resources such as iron and steel, other metals, machinary and equipment, chemical products, food stuff and agri products, besides being world’s largest exporter of wheat, sixth largest exporter of gold, etc. Trade interruptions and sanctions have meant higher prices for all such products, a development that is further stoking food inflation backed with already disrupted global supply chains of the post-COVID world.

The embargoes and sanctions imposed on Russia by the US, EU and other Western Nations are already showing effects. The move by US, UK, Canada and EU to cut off several Russian Banks from the SWIFT Payments System, is particularly very punitive. Similar step has been taken against Iran and North Korea in the past but the impact registered had not been huge because of the limits of these economies.

Though Russia accounts for a small percentage of India’s total trade, the other sectors that have connections with Russian Firms may get hugely impacted. With Russian banks excluded from SWIFT system, those Indian entities trading with Russian firms will have to face added tensions about future payments and outstanding bills.

India has to strategise as to how to control rising crude prices. In such cases the government is met with two choices i.e. It can either pass on the brunt to consumers or has to let it affect India’s Current Account Deficit (CAD). An RBI study shows that a $10 per barrel increase in oil prices results in an additional deficit of $12.5 billion or Rs. 94,750 crore. It also has about a 24 basis direct impact on retail inflation measured by CPI. This calculation makes the above-mention choice a tough call.

India has made a quantum leap in Tax-to-GDP ratio in 2021-22 to reach a level of 11.7%. Tax to GDP ratio of 15% is said to be the tipping point for any country’s developmental trajectory. Some researchers have estimated that over 10 years, per capita GDP is 7.5 percent larger than would otherwise be expected in countries with tax revenues above the 15 percent ‘tipping point’. Below this level, key aspect for pushing for higher economic growth is increasing domestic resource mobilisation (DRM) and getting to 15% level of Tax-to-GDP ratio helps any country in generating sufficient domestic resources to invest in healthcare, education, and infrastructure. Therefore taking this ratio above 15% is a key ingredient for economic growth and, ultimately, poverty reduction.

India’s post pandemic recovery in tax collection is very remarkable even when looked from recent trends perspective. Ratio had fallen to 9.9% in 2019-20 from 11% in 2018-19. Last year, due to poor GDP it had increased to 10.2% and now with significant jump in economic activities, indicating robust recovery the jump of tax ratio to 11.7% is indeed a great news. India’s total tax revenue jumped 34% to ₹27.07 lakh crore in 2021-22, around ₹5 lakh crore more than the Budget estimate. This is clearly indicating the rapid recovery of the economy last year, and also efficient tax administration.

The key ingredients to this increase in tax collection are initiatives under Digital India and simplified corporate taxation. Measures related to ease of compliance and the use of data analytics and artificial intelligence to check evasions have laid the foundation for modern, convenient and transparent taxation system. Gross corporate taxes during 2021-22 were ₹8.6 lakh crore against ₹6.5 lakh crore last year, which shows that the new simplified tax regime with low rates and no exemptions has lived up to its promise thereby enhancing Ease of Doing Business. The number of corporate tax returns filed by businesses increased by 43,000 to over 986,000 .

It is also heartening to see that more of this tax growth is coming from direct taxes. Direct taxes play bigger role in reducing socio-economic inequality. This 11.7% includes a direct tax to GDP ratio at 6.1% and indirect tax to GDP ratio at 5.6%, the ministry added. According to provisional data released on Thursday , the revenue collection is led by 49% growth in direct taxes and 20% growth in indirect taxes. Total direct tax collection in the financial year ended March 31 was ₹14.10 lakh crore and indirect tax, ₹12.90 lakh crore.

It is common observation that as countries develop and income level rises, the ask from government for healthcare, public transportation, education etc rises rapidly and to fulfil that higher Tax-to-GDP ratio is instrumental. Developed countries have this ratio upwards of 30%, unless they have a huge contribution from non-tax revenue source like oil fields etc. In this light, efforts towards making India $5 trillion economy, thereby a global economic powerhouse, have started bearing fruits as directly reflected in India’s GDP growth in recent years.

There’s a common notion regarding the developing countries like India that, ‘the Rich get richer, the Poor get poorer’. One can recall the famous Bible verse, “For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.” This when translated into economical aspects, the only way out is breaking free of the vicious financial cycle that can be achieved by educating majority population and increasing the financial literacy of the country. The recent measures taken by the Government and the four financial sector regulators (RBI, SEBI, IRDAI & PFRDA) to strengthen financial inclusion in the country have started yielding results. PM Jan Dhan Yojana, Jeevan Jyoti Beema scheme, Atal pension Yojana, launch e-RUPI digital payments, recent launch of RBI’s digital currency, etc. are some such initiatives.

The ‘National Strategy for Financial Education 2020-2025’ (NSFE), released by the RBI, had emphasised on a multi-stakeholder-led approach for creating a financially aware and empowered India. Under this, some of the strategic objectives that have been stressed upon include encouraging participation in financial markets, developing credit discipline, developing a savings and insurance-oriented mindset, improving usage of digital financial services in a safe and secure manner, understanding of basic financial flows and investment, and a lot more. The document even stresses on creating financial literacy content for school children, teachers, youth, women, new entrants at workplace/entrepreneurs, senior citizens, divyanjans, and even illiterate folks.

The launch of National Centre for Financial Education (NCFE) promoted by RBI, IRDAI, SEBI & PFRDA, is also playing a big role in promoting Financial Education across India through various programs, courses, Credit Counselling, and thorugh means of its Financial Literacy Centres being set up by leading banks. As at the end of December 2020, there were 1,478 Financial Literacy Centres (FLCs) in the country. While 1,48,444 financial literacy activities were undertaken during 2019-20 (April-March), a total of 45,588 financial literacy activities were conducted by the FLCs during the period April-December 2020.

Demonetisation, urbanisation, reign of smartphones, Digital India campaign, followed by Pandemic-induced dire circumstances have strengthened digital banking infrastructure in the country. People, through their digital engagements, got acquainted with first the platforms, then their features, then to the practice of making digital payments to continue to (or even expand) avail the utilities. The Digital payments in the country have also been on a surge. Unified Payments Interface (UPI) logged 4.52 billion transactions, amounting to Rs 8.26 trillion in February 2022, according to data released by NPCI. The number of Debit and credit card issued also went up from 88.29 crore in January 2018 to 101.1 crore in January 2022.The number of ATMs across the country has risen to 2.13 lakh in September 2021, over 47% of which were in rural and semi-urban areas. The number of branches of Regional rural banks have also grown exponentially. A total of 22,042 rural bank branches were operating across the country in 2021 (from 17901 in 2014). Other recent glam factors that have contributed in the growth are fintech entrepreneurship, popularity of new terms and technologies like Unicorns, Cryptocurrency, digital kiosks, digital wallets, popularity of social media shops, e-commerce social and networking sites, informal investment platforms, NEFT, IMPS, Net Banking and QR codes etc.

Financial literacy supports the pursuit of financial inclusion by empowering the customers to make informed choices leading to their financial well-being. Financial abilities can pave way for unprecedented economic growth and increase the standard of living. India’s work force combined with strong financial literacy can make it a financially savvy country resonating strong global influence. The dream of making India financially educated is an uphill task for a country whose one-fourth population is not even literate. However, these recent interventions and strategies have resulted in positive changes and these should intensify.

India is a diverse country in many ways and perhaps one such arena is the age of successful companies in the country. On one hand, India boasts the third largest startup ecosystem with an increasing number of unicorns, and on the other hand, the listed companies are breaking their own record when the Indian equity market enters the top five clubs.

For the first time, India’s equity market has entered the top five clubs in the world in terms of market capitalization. The country’s total market cap stands at $3.21 trillion, ahead of some of the most loved markets of the world, namely, the UK ($3.19 trillion), Saudi Arabia ($3.18 trillion), and Canada ($3.18 trillion). At the start of this year, the UK and France were ranked fifth and sixth with a market capitalization of $3.7 trillion and $3.5 trillion, respectively.

The tumultuous situation around the globe, in the background of Russia’s military operation in Ukraine, has overturned the ranking of market capitalisation. The dent, perhaps, has been borne massively by European Nations. Case in point, Germany, which was formerly one of the top five markets, is now ranked tenth. Meanwhile, Saudi Arabia has climbed three places from 10th to 7th. The country, especially its largest firm Aramco, will benefit from a jump in oil prices this year.

The recovery of Indian markets over the last few days could be a reflection of the positive wave seen after election results, in addition to the ongoing peace talks regarding the Russia-Ukraine crisis. Further, now in India the long-term capital gains on listed equity shares, units etc. are liable to a maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. There is a cap on the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. These steps will give a boost to the startup community for sure.

Today India has the third-largest number of Unicorns in the world. More than 10 thousand start-ups have been registered in the last 6 months. Recent exponential growth in the number of unicorns in India is not only backing innovative solutions but also large scale deployments.

India has become a hotbed of start-ups including some of the difficult domains like defence. India has also deregulated many sectors like Drones, Space, Geo-spatial mapping and made major reforms in the outdated telecom regulations related to IT sector and BPO. The spirit of Entrepreneurship is high and shining bright in the times of Atmanirbhar Bharat. This strengthening of Indian Equity market’s standing in the global ranking bodes well for these wealth creators.