As various international agencies have projected slowing of global economic growth due to rising commodity prices, supply chain bottlenecks and faster than the projected withdrawal of monetary accommodation, India’s economy is also expected to witness slowing growth, though still higher than the other emerging market economies, said a finance ministry report released on Monday.
“High-wire balancing act between maintaining growth momentum, restraining inflation, keeping the fiscal deficit within budget and ensuring a gradual evolution of the exchange rate in line with underlying external fundamentals of the economy is the challenge for policymaking this financial year,” according to the ministry’s Monthly Economic report for May 2022.
It added that successfully pulling it (balancing act) off will require prioritising macroeconomic stability over near-term growth. The reward for such a policy discipline will be the availability of adequate domestic and foreign capital to finance India’s investment needs and economic growth that fulfils the employment and quality of life aspirations of millions of Indians.
“The recent 50 basis point repo rate hike by the RBI taking the repo rate to 4.9 per cent and counteractive policy action by the government in the form of excise duty cuts, rationalisation of custom duties, enhanced subsidy to targeted sections, trade policy changes and the government’s continued committed to enhance capex (capital expenditure) are expected to restrain inflation while underpinning economic growth in the ongoing fiscal year,” the report said.
In the medium term, the successful launch of the production-linked incentive (PLI) scheme, development of renewable sources of energy while diversifying import dependence on crude oil and strengthening of financial sector are expected to drive economic growth.
“India faces near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation and containing the current account deficit while maintaining a fair value of the Indian currency. Many countries around the world, including and especially developed countries, face similar challenges. India is relatively better placed to weather these challenges because of its financial sector stability and its vaccination success in enabling the economy to open up,” the report said.
It added that its medium-term growth prospects remain bright as pent-up capacity expansion in the private sector is expected to drive capital formation and employment generation in the rest of this decade. Near-term challenges need to be managed carefully without sacrificing the hard-earned macroeconomic stability.
The report said The provisional estimates of GDP released on 31st May 2022 have reaffirmed Indian economy’s complete recovery over the pre-pandemic level, although contact intensive sectors are yet to recover. The recovery is driven by sustained growth in agriculture, higher investment and rise in exports.
High-frequency indicators (HFIs) for the April-May period signal a strong pick-up in economic activity in 2022-23, sustaining the momentum gathered in Q4 of 2021-22. Along with ensuring sustainable growth path, the government has been focussed on keeping the fiscal deficit under balance. The fiscal deficit for 2021-22 stood at 6.7 per cent of the GDP, lower than revised estimates of 6.9 per cent, it added.
India’s gross domestic product (GDP) grew 4.1 per cent in the fourth quarter of the financial year 2021-22. For the full financial year 2021-22, the GDP saw a growth of 8.7 per cent. The economic growth had witnessed a contraction of 6.6 per cent in the previous financial year 2020-21.
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