Economy
Indian Economy
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.