December 26, 2022)NEW DELHI: The ongoing economic recovery is expected to gain momentum in the new year, but global headwinds and the uncertainty created by the Covid surge in China will emerge as major headwinds.
Amid the sharp slowdown in global growth, India has emerged as a standout nation and estimates show growth to be around 7% for 2022-23, driven by robust domestic demand momentum.
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The economy has so far staged a smart recovery from the deadly impact of the Covid waves. Several indicators point to a return to growth. While the Reserve Bank of India (RBI) in its latest monetary policy review cut its GDP growth forecast to 6.8% for 2022-23, economists estimate the expansion will be around 7% – not a bad number amid the likely recession in many countries.
There are several challenges policymakers may face in the new year. The first is the sudden development on the Covid front. The government moved quickly to take precautionary measures amid the outbreak in China and some other countries. The strong immunization track record should hold India in good stead, but the situation in China is likely to remain one of uncertainty calling for strong vigilance and deft navigation of the economy.
The outlook for recession in several countries will also be a major challenge for the country’s exports, which have already started to falter. But there are several positives that will likely hold up on their own. Domestic demand remains robust, the agricultural sector remained resilient and consumption showed signs of recovery after the reopening of contact-intensive sectors.
“The Indian economy is relatively better insulated from global spillovers than other emerging markets. India is less exposed to international trade flows and relies on its large domestic market. India’s external position has also improved significantly over the past decade,” says a recent World Bank report.
The report, titled “Navigating the Storm,” finds that while the deteriorating external environment will weigh on India’s growth prospects, the economy is relatively well positioned to weather the global fallout compared to most. other emerging markets.
Inflation, which had become a major policy concern for India, now appears to be moderating, with the latest retail and wholesale price inflation data showing a sharp decline. This could mean less aggressive interest rate hikes from the RBI. The 2023-2024 budget to be unveiled in February is also expected to contain measures to stimulate growth and protect the economy from global headwinds. Economists believe that 2023 should be a year of consolidating and protecting growth in the face of global challenges and closely monitoring any unexpected storms.
“The resilience of domestic demand will have a significant impact on our growth next year. The emergence of the new strain of Covid in China adds to the list of downside risks to the global economy such as the strong inflation, rising interest rates and the conflict in Ukraine,” said DK Joshi, chief economist at ratings agency Crisil.
