India @2022: Slowing growth due to global headwinds

The past twelve months have been tumultuous and unexpected in many ways. The year began with the easing of the pandemic and hopes that the havoc wreaked by a madcap virus would finally end. The world was expected to get back to some kind of normalcy. These hopes were dashed at the end of February with the Russian invasion of Ukraine. The ripple effects of that conflict spread globally, and virtually no country has been spared from dealing with the consequences.

On the economic front, the immediate impact was a surge in energy prices. Crude oil spurted to over $140 per barrel from earlier levels of around 80 to 90 dollars. Fortunately, prices soon moderated, but oil markets continued to hover in the region of $100 per barrel for many months. The next blip on the horizon was the disruption of global supply chains since major metals and commodity producers Russia and Ukraine were suddenly out of the market.

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Ukraine is also the world’s biggest exporter of sunflower oil and, along with Russia, accounts for about 30 per cent of global wheat exports. The conflict thus brought hardship to many countries, whether in the form of food shortages, high energy prices or manufacturing curbs.

For India, the war upset all the carefully calibrated calculations made by government policymakers for the 2022-23 budget. Financial estimates had been made based on international oil markets remaining in a range of $75 to 80 per barrel, but instead, these ruled at an average of $100 per barrel for most of the year. In addition, inflationary pressures increased on the economy owing to the impact of higher fuel and food prices. The consumer price index touched 7.8 per cent by April, forcing the Reserve Bank of India to abandon its accommodative monetary policy. It now had to focus on keeping inflation within the tolerance band of two to six per cent. Moving in that direction, the central bank began a series of interest rate hikes to cool prices. It has so far raised rates four times during the year and achieved some measure of success, with inflation having climbed down to 5.88 per cent in November.

Overall growth expectations for the year have also been downgraded, given the slowdown in manufacturing and other core economic sectors. From the original projection of 8 to 8.5 per cent at the beginning of the current fiscal, even the government has lowered its target to 7 per cent. It must be recalled that the economy contracted by 7.3 per cent in 2020-21, followed by a rise of 8.7 per cent in 2021-22. Since growth in the pre-pandemic era was about 4 per cent, the overall rise in the last three years has been only about three per cent. The setbacks due to the external environment in the current fiscal have meant that the country’s hopes of becoming a developed economy by 2047 look like a distant dream. It has to grow by at least 8 per cent annually to achieve this goal.

Growth projections for 2023 are in the range of 5 to 6 per cent. Yet this is considered positive in contrast to worldwide growth, which is expected to be only 1.8 per cent. The fact is, India is set to be the fastest growing major economy in the world. At the same time, geopolitical developments are constraining the pace of its post-pandemic recovery.

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There has been an impact already on export growth. The record rise in merchandise exports during 2021-22 has slowed down in the current fiscal due to a fall in global demand. With import costs rising owing to hardening oil markets along with a depreciating rupee, the current account deficit is set to exceed three per cent of GDP, compared to only 1.8 per cent last year.

In this backdrop, it is clear the hardships suffered by the rural masses in particular have not eased over the past year. It was in recognition of the impact of inflation and the failure of employment levels to bounce back to pre-pandemic levels that the free foodgrains scheme was extended till the end of December. It has now wisely been decided to conclude it, but the government will continue supporting the needy by converting the National Food Security programme into a free scheme. This will put a lesser burden on the exchequer while providing wide coverage to those at the bottom of the pyramid.

The year has ended with the news of Chanda and Deepak Kocchar being arrested along with corporate tycoon Venugopal Dhoot. It is unfortunate since the former ICICI Bank chief was seen as the torchbearer for an entire generation of women bankers who rose to the top echelons of the industry. On the plus side, the glass ceiling is well and truly broken in the banking sector, and a host of highly competent women continue to be at the helm of the industry. The other silver lining for banking is that it has been restored to better health, with non-performing assets falling to 6 per cent in 2022 from 11.5 per cent in 2018.

Thus 2022 has been a mixed bag, with the revival in growth constrained by adverse global headwinds. The next year is likely to be equally challenging, and policymakers must have a flexible approach to deal with the fast-changing geopolitical scenario.

(The writer is a senior journalist)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.