A compilation of trends in terms of GDP projections by internal and external agencies, inflation, currency fluctuation and drivers indicated by the Reserve Bank of India denotes a positive trajectory for the Indian economy even as geopolitical situation remains sensitive.
Indian economy was looking at a revival post COVID 19, particularly after the Omicron or the third wave of COVID 19 tapered off by end of February, beginning of the War in Ukraine on February 24 and disruptions that followed in the energy, trade and food chain led to a surge in inflation.
With the Reserve Bank of India (RBI) and the Ministry of Finance working in tandem to control the prices, periodic interventions by the Monetary Policy Committee (MPC) of RBI has been effective to tame the inflation at 6.7 percent
Gross Domestic Product (GDP) growth remains robust while government focus on infrastructure spending and solid tax numbers may provide hopes ahead despite negative global cues.
Union Budget – 2022-23
India’s Union Budget 2022-23 envisaged a total outlay of Rs 39.45 lakh crore with focus on spending on infrastructure and extended credit guarantees to small businesses to pull off an equitable post-Covid recovery. The announcements were part of the annual budget Finance Minister Nirmala Sitharaman presented in parliament amid low demand, job losses, high inflation, and a wave of Omicron cases. As per the Ministry of Finance, India's GDP has witnessed robust recovery twice with the past two waves of the pandemic, a testimony to the nation's economic resilience. The Budget goals for FY2022-23 aim to further India's aspirations in “Amrit Kaal”, as it moves towards its 100th year post independence as per statement of the Ministry of Finance.
In general, the Budget Estimates 2021-22 were Rs. 34.83 lakh crore and the Revised Estimates 2021-22 were Rs. 37.70 lakh crore, while Total expenditure in 2022-23 is estimated at Rs. 39.45 lakh crore and Total receipts other than borrowings in 2022-23 estimated at Rs. 22.84 lakh crore as indicated in the financial highlights.
Fiscal deficit in year 2021-22 is 6.9% of GDP (against 6.8% in Budget Estimates) and Fiscal deficit in 2022-23 is estimated at 6.4% of GDP. In general Union Budget denotes that the Government has sought to complement macro-economic level growth with a focus on all-inclusive welfare.
Inflationary Pressure
There were concerns over rising inflation as the MPC of RBI on April 8 resolution painted a grim picture of the Indian economy and in an unscheduled meeting raised the policy repo rate by 40 basis points to 4.40 per cent to tamp down on inflation which shot up to a 17-
month high of 6.95 per cent in March.
Meanwhile, Retail inflation soared to an eight-year high of 7.79 per cent because of higher food and fuel prices.
However, Retail inflation eased to 7.04 per cent in May, mainly on account of softening food and fuel prices as the government as well as the RBI stepped in to control spiraling price rise by way of duty cuts and repo rate hike.
The country’s retail inflation, which is measured by the Consumer Price Index (CPI), rose to 7.01 per cent in the month of June.
The provisional data released by the National Statistical Offi ce (NSO) on August 12, 2022 showed that inflation, measured by y-o-y changes in the all India consumer price index (CPI), eased to 6.7 per cent in July.
However, this continues to be above the 6 percent tolerance of the RBI and thus more taming may be in the offing. "Inflation has edged down, but its persistence at elevated levels warrants appropriate policy responses to anchor expectations going forward," RBI said in the monthly report for August released on August 18.
Some of the key factors for rise in retail inflation include geopolitical tensions, generalised hardening of global commodity prices, the likelihood of prolonged supply chain disruptions, dislocations in trade and capital flows, divergent monetary policy responses and volatility in global financial markets.
Growth Rate Projections
There are varying estimates of India’s GDP growth. International Monetary Fund (IMF) projected a growth of 8.2 per cent for India in the current fiscal year, this amid the global growth projection at 3.6 per cent in the wake of Ukraine war.
India’s GDP grew at 8.7 per cent in the financial year 2021-22, while the GDP for the January-March quarter (Q4 of FY22) rose 4.1 per cent, data released by the National Statistical Office (NSO) showed.
For 2022-23, the RBI has projected India’s GDP growth rate to be 7.2 per cent. World Bank in its latest Global Economic Prospects report has said that as the global economy enters a period of “feeble growth” and “elevated inflation”, India will grow at 7.5% in 2022-23. In January, the Bank had pegged India’s growth projection for the fiscal year at 8.7%. For 2023-24, the report projects that India will grow at 7.1%.
On the other hand Indian economy is projected to grow 7.1–7.6 per cent in the current financial year despite shifting geopolitical realities across the world as per leading consultancy Deloitte India, which is also the views of global and regional financial institutions. Projections of growth above 7 percent appears to be the norm that could be achieved in the current year by conservative estimates.
What is significant is will this contribute to growth in employment, reduction in poverty and be sustainable ahead. Importantly the growth of economy in 2021-22 is to be measured against a low base and contraction was over 20 percent due to impact of COVID 19.
Currency Rate Fluctuations
Currency rate fluctuation has been another major concern during 2022. Amidst high inflation, Indian rupee lost over 7 percent of its value in 2022 and weakened past the psychological level of 80 per US dollar. RBI currency reserves have fallen by more than $60 billion from its peak of $642.450 billion in early September last year, in part due to valuation changes, but largely on the back of dollar selling intervention. Some recovery is however evident in the first fortnight of August.
RBI Assessment 18 August
In the monthly report for 18 August, the RBI states, “Global growth prospects have turned gloomier over the month. Easing of supply chain pressures and the recent ebbing of commodity prices are providing some breather from record high inflation. In India, supply conditions are improving, with the recent monsoon pick-up, strong momentum in manufacturing and a rebound in services”.
RBI is hopeful that, “onset of festival season should boost consumer demand, including rural, also as sowing activity picks up. Robust central government capital outlays are supporting investment activity. Inflation has edged down, but its persistence at elevated levels warrants appropriate policy responses to anchor expectations going forward”.
In the short to medium term the RBI believes that roll out of 5 G, higher corporate earnings that have beaten expectations which has attracted Foreign Portfolio Investment back to India and recognition of climate change as a risk to stability are positives for the Indian economy.
Conclusion
In terms of GDP growth India presents a rosy picture as it marks the highest in large economies of the World with China for the first time trailing below 5 percent. With GDP expected to grow between 7 to 8 percent, monsoon in 2022 being near normal, trajectory is expected to be positive. Geopolitical risks emanating from the War in Ukraine are a critical factor that will determine energy as well as food prices, the state of the United States and Chinese economy – the two largest will also impact India even as foreign exchange reserves remain high at over 10 months of import thus a catastrophe is not expected.
[Compilation and editing assistance by Harshita Panwar]