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Will Indian Economy Do Better In 2022

Here are details pertaining to the forecast of the growth of the Indian Economy in 2022

In November of last year, PM Narendra Modi predicted that India’s economy would grow 7.9% in the fiscal year beginning April 1, 2022-23. The Indian economy is expected to develop at a rate of 9.2 percent in the current fiscal year, which ends on March 31. It has been stated that the 5.5 percent GDP growth estimate for 2023 has been maintained.

Growth is a top priority in the budget.

The rebound in contact-intensive services industries is sluggish, although it should pick up when the Omicron wave subsides. The country is returning to normalcy, with most remaining limitations eased as the COVID-19 situation improves. This includes the reopening of schools and institutions for in-person instruction in several states.

The 9.5 percent growth prediction for 2022 is based on successive growth rates that are relatively controlled; consequently, the growth rate has room to rise. Considering 2021 ended well, it is expected that 6-7 percent of growth will be added to this year’s annual revenue growth.

The budget for the fiscal year 2022-23 prioritises growth, with a 36 percent increase in capital expenditure allocation to 2.9 percent of GDP, which the government hopes would attract private investment. The Reserve Bank of India kept interest rates steady in February, indicating that monetary policy remained supportive.

Geopolitical Consequences

In terms of the international scenario, it stated that the great-power struggle and geopolitical realignment were reshaping the global world order. Over the previous two years, geopolitical rifts pitting China and Russia against the US and other Western powers have widened. Russia’s recognition of the independence of two eastern Ukrainian territories raises the geopolitical risks that Modi has previously identified, including the possibility of new and more severe sanctions against Moscow.

Any additional sanctions’ eventual credit impact will be decided by the sectors targeted, their scope, and the degree of collaboration across Western countries. Furthermore, China’s relations with the United States, Europe, Australia, and India have deteriorated in Asia over the previous two years. Gains from the globalisation process of the 1990s and 2000s could be reversed if China’s policies continue to prioritise its domestic economy and other nations take moves toward diversification and on-shoring of global goods supply chains.

FICCI Forecasts

According to the FICCI Economic Outlook Survey, the country’s gross domestic product (GDP) is predicted to expand by 7.4% in the current fiscal year 2022-23. Agriculture and related activities are expected to increase at 3.3 percent this fiscal year, while industry and services are expected to rise at 5.9 percent and 8.5 percent, respectively.

However, it stated that economic growth’s downside risks had increased. While the prospect of a pandemic remains a major concern, the ongoing conflict between Russia and Ukraine is creating a serious obstacle to global recovery.

The present crisis between Russia and Ukraine is projected to exacerbate price increases in imported goods. The Average Wholesale Price Index-based inflation projection for the March 2022 quarter has been set at 12.6%, according to the report.

Economists are of the opinion that the Reserve Bank of India will attempt to reverse its attitude in the second half of this fiscal year (2022), and one can expect a rate hike of 50-75 basis points before the conclusion of this fiscal year.

Retail inflation has also remained above the RBI’s target range in January and February 2022, according to the industry organisation, with some relief expected in the new fiscal year. In the future, the unsustainable high international commodity prices are projected to level off.

Global inflation is expected to peak in the first half of 2022 and then moderate, according to the survey. A slowing Chinese economy and overall deceleration in global growth momentum, diminishing pent-up demand, and monetary policy normalisation/rate hikes by the US Federal Reserve will all contribute to pricing softening in the second half of the year.

Furthermore, exports, which were cushioning the loss of domestic output, are expected to be muted, as developed countries are also experiencing a downturn and are moving away from fiscal assistance. In order to drive growth in 2022-23, the focus should be on private demand and investment, according to the report. Despite the hurdles, the Indian economy is well-positioned in the medium run.

Public CAPEX will push out private investment, according to the participants, as inflation concerns fade. The government’s infrastructure-led capital investment would be critical to recovery. The need of the hour is to front-load spending so that the nascent recovery indications are not undermined.

In its April announcement, the RBI is expected to maintain its support for the ongoing economic recovery by maintaining the policy repo rate steady. Consumer confidence has been modest since the pandemic and has failed to return to pre-pandemic levels.

Moreover, given the impact of the ongoing violence on smaller businesses, continued support for MSMEs is crucial. It is critical that MSMEs maintain their financial flows in order to keep their operations running. There is a need to ensure that extra finances for MSMEs are available, and banks’ cash margins should be reduced from 25% to 10-15%.

Conclusion

Experts have predicted India’s GDP growth prediction for the current calendar year from 7% to 9.5 percent, citing a faster-than-expected economic rebound following the national lockdown in 2020 and the second wave of the Covid-19 outbreak in mid-2021. According to analysts, fiscal policy should be prioritised at this time, and inflation pressures might be managed by excise reduction and subsidies. As inflationary pressures intensify, this will be critical to protecting private consumption expenditure.

According to estimations offered by Survey participants, global growth could decelerate by 50-75 basis points as a result of the conflict, further dampening the prospects for a post-COVID-19 rebound.

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