The financial year 2021-22 was expected to be a year of
recovery on the back of normalised resumption of economic
activity and improved mobility, post the first COVID-19 wave.
On the contrary, the year commenced with the onset of a more virulent second wave, resulting in a record number of infections and high mortality rate. The country witnessed partial lockdowns across different states, as opposed to complete lockdowns during the first wave. With improved vaccination efforts, the economy bounced back faster than anticipated. However, the recovery momentum was once more disrupted due to the emergence of the Omicron variant towards the end of Q3, which fortunately, lasted only for a brief period. The emergence of geopolitical tensions towards the end of the year has however now created new challenges with a sharp rise in commodity prices, leading to a record high inflation and rising interest rates.
Despite these turbulences, India’s GDP is expected to grow by 8.7% in FY 2021-22, compared to a 6.6% contraction registered in the previous year.
India’s Union Budget 2022 emphasised on maintaining fiscal deficit near current levels along with a renewed capex thrust. Government capex serves the twin purpose of employment
generation and acts as a growth multiplier. Complementing
the efforts of the Government, the RBI continues to pursue
an accommodative but cautious monetary stance. The tax
buoyancy due to improved economic activity could help India
to stay adequately prepared to handle the worsening terms of
trade arising out of high oil prices. The Government remaining
committed to achieve its NIP target and private capex showing
early signs of revival, augurs well for economic growth.
The surge in domestic demand, improvement in capacity utilization levels and much leaner corporate balance sheets are further indicating a sustained resurgence in the economic output. The IMD’s prediction of yet another year of normal monsoon has added to the positive sentiments.
With the easing of COVID-19 protocols, consumer confidence and household optimism are also on an uptrend. A robust Rabi output should support recovery in rural demand and pick-up in contact-intensive services should help in further strengthening the urban demand.
It is expected that the ongoing geopolitical conflict could impact supply chain dynamics and keep commodity prices elevated for a longer period. Rising interest rates across the world could also impact capital flows into the country. However, India due to its structural reforms and thoughtful fiscal stimulus and monetary support from Government & RBI respectively, is in a better position to withstand the challenges, as in the past.