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Retail inflation is expected to accelerate to 6.7% in 2022-23, from 5.5% in 2021/22. The cost of living for the poor has risen sharply over the past five years due to soaring food prices.
Mr Modi has also faced criticism for failing to create enough jobs despite providing billions of dollars in subsidies to boost manufacturing. Unemployment is expected to rise to 5.4% in 2022/23, with nearly 16% of urban youth aged 15-29 still unemployed due to poor skills and a lack of quality jobs.
India’s public debt ratio under President Modi remains high and is expected to rise to 82.3% of GDP by 2024-25, amid slowing economic growth.
The IMF forecasts that general government debt, including federal and state debt, could reach 100% of GDP in an adverse scenario by fiscal year 2028.
Impact on China
Notably, six of the seven countries are important partners of China’s Belt and Road Initiative (BRI). Before the COVID-19 pandemic, these countries were heavily dependent on Chinese loans for infrastructure investment.
The Orange Line metro in Lahore, Pakistan, a metro project built under the China-Pakistan Economic Corridor. (Photo: Getty Images)
Since Chinese President Xi Jinping took power in 2013, China has signed more than $100 billion in investment deals in South Asia, nearly half of which are in Pakistan.
In 2015, Beijing and Islamabad launched the China-Pakistan Economic Corridor (CPEC), with up to $62 billion in Chinese investment loans for coal, hydropower, railways, copper and oil mining in Pakistan.
However, Pakistan’s economic survey 2020-2021 clearly shows that the country’s debt to China is increasing.
Pakistan’s short-term debt to China was reportedly $6.7 billion as of June 2022, compared to $2.8 billion owed to the IMF. Most of this is short-term debt with high interest rates ranging from 4.5% to 6%, placing a huge financial burden on an already economically struggling Pakistan.
Bangladesh is the second-largest recipient of Chinese investment in South Asia after Pakistan. Since establishing a strategic partnership in 2016, China has expanded its presence in the country through various infrastructure projects.
For example, with Chinese funding, Bangladesh completed the Payra Thermal Power Plant Project and claimed to have achieved 100% electrification, a first in South Asia.
In the 2020-21 financial year, Bangladesh owed a total of $60.15 billion in foreign debt, mostly to the Asian Development Bank and the World Bank ($25 billion) and the rest to bilateral partners, mainly China, India and Russia. Of this, China’s loan amounted to $17.54 billion, mainly for the construction of the Bangabandhu Sheikh Mujibur Rahman Tunnel under the Karnaphuli River.
Sri Lanka is strategically located at the midpoint of shipping routes connecting China and the Middle East. Beijing has invested significantly in foreign direct investment and has repeatedly been the top source of FDI in Sri Lanka.
During the period 2000 – 2020, the Sri Lankan government received more than 12 billion USD in loans from China to finance infrastructure projects in the island nation, most notably the construction of a new port in Hambantota in 2002.
Beijing then provided $1.1 billion in loans along with Chinese contractors for the project. When the project began to lose money – so much so that Sri Lanka defaulted – the Chinese state-owned operator took control of the port in late 2017 – on a 99-year lease.
Landlocked Nepal has historically relied on India for much of its trade and transit routes. However, Nepal has recently turned to China, with Beijing pledging connectivity projects that will provide alternative routes and reduce its dependence on India, dubbed the “Trans-Himalayan Corridor”.
The corridor would include a railway linking Tibet (western China) and the Nepalese capital Kathmandu, estimated to cost more than $5 billion. There is also a hydropower project costing more than $2.5 billion that was cancelled due to a corrupt bidding process.
Instability in South Asia could affect China’s economic recovery. (Photo: Reuters)
Obviously, with the large amount of investment, the countries along the “Belt and Road” route play an important role in China’s development. If the construction and development of infrastructure is successful, it will help expand the market for Chinese goods into this regional market of nearly 2 billion people.
So when these countries fall into turmoil, China also suffers significant losses. China itself is facing certain problems. The country’s top leaders have acknowledged that “overcapacity in some industries” is a major economic challenge that needs to be addressed this year.
Overcapacity has led to a steady decline in factory gate prices for the past two years. This sustained downward trend is pushing the entire Chinese economy toward deflation and eroding corporate profits.
This makes problems such as unemployment, real estate bubbles, consumer spending, falling birth rates, etc. more difficult to solve.