One cost of the past two years of limited air travel is that it became too easy to lose touch with what was really happening in other countries. Having not returned in a number of years, a trip last month was a reminder that it’s always impressive to absorb, even fleetingly, how fast emerging economies such as India are changing, and notwithstanding the pandemic, largely improving. Better infrastructure, cleaner streets, more and better cars, fewer but better motorbikes, fancier shops and restaurants, way more mobile phones. The pace of change is well beyond what most people in rich countries like Australia are used to.
Nowhere is India’s progress more evident than in the tech sector. In the past India’s tech story was all about its dynamic entrepreneurs and skilled IT workers. Today however, the most impressive elements are what is happening at the bottom of the pyramid, via digitally enabled inclusion.
Sustained government efforts over more than a decade have delivered in spades. Most of India’s population now has access to both a unique biometric ID and a bank account. A decade ago, most lacked access to either formal identification or the banking system. A unified payments interface now allows for easy transfers and payments. And all this digitalisation is not only driving a boom in innovation and start-ups, but also enabling a promising modernisation of India’s notoriously “leaky” welfare system – using direct benefit transfers that are better targeted and reduce opportunities for corruption. Arriving just in time to make a difference during the pandemic, according to one study.
India’s broader economic outlook however seems less rosy. Much is made of the fact that India is now expected to be the world’s fastest growing large economy, given China’s ongoing structural slowdown. India’s economy has certainly rebounded strongly and most official forecasts are for growth of about 7 per cent over the coming years, despite a troubled global economy.
Delve only slightly deeper however, and things look less impressive.
Other countries will likely retain most of the benefits of greater openness. India risks forfeiting them.
India suffered an especially acute economic collapse in 2020. Despite the rebound, its economy is still 13 per cent below its pre-Covid trajectory (using earlier International Monetary Fund projections), or what might broadly be considered its “normal” running level – one of the biggest such gaps among major economies. None of the top economists I was able to speak to thought India would be able to close the gap (nor does the IMF). Many also suggested they wouldn’t be surprised if growth was much slower over the next few years, at say 5 per cent. High debt, a big budget deficit, accelerating inflation, and rising global interest rates mean India has little room to manoeuvre.
Delivering growth of 5-7 per cent might still seem pretty good. But most economists think India needs upwards of 7 per cent growth to create enough decent jobs for its young and rapidly expanding workforce. Especially after the setbacks caused by the pandemic which destroyed many better jobs and sent migrant workers back to the countryside. A major point of concern is that labour force participation, especially among women, seems to have been falling since before Covid-19 struck.
India has always struggled generating enough decent jobs, despite fast economic growth. The explanation lies in its unique growth model driven by relatively high skilled sectors (IT but also within manufacturing) as opposed to the labour-absorbing low skilled manufacturing exports seen in most other non-resource driven rapid growth economies (in East Asia and more recently in Bangladesh).
Delivering better jobs, and faster economic growth, will likely require getting Indian manufacturing going in a much bigger way.
A smart phone factory in Noida, India (Anindito Mukerjee/Bloomberg via Getty Images)
Economists generally think doing so requires greater openness to trade and foreign direct investment (FDI), especially as a means of integrating into global value chains. It concerns many then that the Modi government has instead increased tariffs while spurning the Regional Comprehensive Economic Partnership. Trade negotiations with selected partners, including Australia and the European Union, seem motivated more by diplomacy than economics, and a weak substitute for broader liberalisation in any case. India has joined the US-led Indo-Pacific Economic Framework, but the arrangement is not about market opening, at least for now.
Distrust of China and concerns about supply chain resilience are driving factors but also cover for longstanding protectionist currents – now reinforced as the world seemingly converges on India’s more sceptical views of globalisation. Lost however is that most other leading economies are far more open than India to begin with, even if they are perhaps paring this back. Other countries will therefore likely retain most of the benefits of greater openness. India risks forfeiting them.
The government has not however given up on manufacturing. It is just pursuing its own strategy. First, it is hoping that domestic reforms and infrastructure investment can themselves improve India’s manufacturing competitiveness by enough to make a substantial difference. Second, for selected subsectors, the government has rolled out “production linked incentives” (subsidies) aimed at closing the remaining competitiveness gap and luring relocating global supply chains – with some success to date for instance in attracting iPhone contractors such as Foxconn to set up shop.
Supporters point to a jump in merchandise exports and FDI inflows as vindication. But a broader view suggests this is less meaningful than it seems. Trade in goods has boomed globally during the pandemic. India has only modestly outperformed the world average and global trade is expected to slow as demand conditions normalise (or worse). FDI inflows rose substantially through to the middle of 2021 but have eased since. India is big, so any improvement in manufacturing will be noticed. Relative to the size of India’s economy however, both merchandise exports and FDI continue to hover around the average levels seen last decade at 13 per cent and 2 per cent of GDP respectively.
As Amita Batra, economics professor at Jawaharlal Nehru University, has recently written for The Interpreter, a starting point to do better would be for Indian trade policy to prioritise deeper integration with ASEAN. Indeed, this was a key suggestion from several regional experts at the Delhi Dialogue on India-ASEAN relations (which is why I was in New Delhi in the first place).
India’s economy will probably continue to grow reasonably fast. Moreover, digitalisation holds out the promise of dual benefits in driving business dynamism at the top and fostering greater inclusion through digitally enabled services and social transfers at the bottom. Whether India can generate enough decent jobs for its people however remains the big concern.
Roland Rajah’s travel was supported by Research and Information System for Developing Countries (RIS) to attend the Delhi Dialogue on India-ASEAN relations.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
