The economy is expected to remain on the path to recovery amid inflationary concerns
Economists have, however, suggested a cautious approach to fiscal policy due to uncertainty over the impact of the Omicron variant of covid, rising inflation, and production barriers due to constraints on gas supply. components.
“The Indian economy appears to be on the right track for recovery as we end nearly nine months of the fiscal year. The stage would be set for higher accelerated growth in FY 23, which can be in the range of 7-7.5%, ”said Madan Sabnavis, chief economist at CareEdge.
Based on the progress made in terms of Kharif outlook, industrial growth and opening up most services to optimal capacity, growth of 9-9.2% is expected for FY 22, Sabnavis said, noting that it should not be interpreted as a strong recovery as it comes on the negative growth of last year.
While Sabnavis raised concerns about Omicron, he said any serious lockdowns are unlikely and restrictions, if any, would be more limited to certain service segments.
According to the economic outlook from the Organization for Economic Co-operation and Development (OECD), India’s recovery has accelerated and its GDP is expected to grow 9.4% in FY22, before falling back to 8.1% in fiscal year 23 and 5.5% in fiscal year 24.
“Inflation has remained near the upper band of the Reserve Bank of India (RBI), but is expected to subside as supply chain disruptions are overcome,” he said. Financial markets remain strong and capital inflows are supporting the accumulation of reserves.
Moody’s Investors Service, in its latest report, predicted that economic growth in India would rebound sharply, pegging the country’s GDP growth at 9.3% and 7.9% in fiscal years 22 and 23, respectively.
Rising consumption, India’s push for domestic manufacturing and favorable financing conditions will support further investment, he noted.
Public spending could also see a boost, with higher direct tax collections in FY22 compared to the previous year. The net collection of direct taxes from the central government so far this year has affected ??9.45 trillion, representing growth of 60.8% over the previous year.
The cumulative anticipated tax revenue for the first, second and third quarters of FY22 was ??4.59 billion as of December 16, compared to ??2,900 billion for the corresponding period of fiscal year 21, an increase of 53.5%.
The government has managed its finances well, with stable revenues ensuring that the objectives for the year will be met. Spending has been calibrated and there won’t be any surprises by the end of the year, economists added.
CIFAR Chief Economist Aditi Nayar noted, however: “The timid growth of IIP in October 2021 has given a note of caution, dampening the exuberance generated by the holiday season at the start of this quarter. . “
The industrial production index (IPI) rose 3.2% in October, with output growth rising from 12% in August to 3.3% in September.
Semiconductor shortages are expected to impact production in the coming quarters, an issue the government aims to address in the long term with its new semiconductor manufacturing policy.
High-frequency indicators such as electronic invoices, tax collections on goods and services, electricity demand and port freight traffic have been stable in recent months, with a few exceptions due to the second covid wave.
The production of electronic invoices had grown steadily, rising from 1.2 million in May to 2.3 million in October, before slowing to 2 million in November. In the first five days of December, an average of 2.1 million electronic invoices were issued, according to GSTN data.
The collection of the GST by central and state governments has improved compared to ??92,000 crore in June at ??$ 1.31 trillion in November, the second highest since the deployment of the GST.
The pace of vaccination has also improved significantly, with India administering 828.2 million first doses and 537.2 million second doses. More than 1.36 billion doses have been administered in the country so far, which is 2.8 times the total doses administered in the United States (486 million), according to government data.
“People have learned to live with the virus, and even with Omicron the impact seems to have been limited, at least for now. We will have to watch the development of Omicron in India, but I think the overall economy, consumer sentiment will not take a heavy hit in the coming quarters, ”said DK Joshi, chief economist at Crisil.
Moody’s has warned that consumer sentiment could erode if India faces another wave of covid-19, which could dampen economic activity and consumer demand.
“This could lead to moderate EBITDA growth of less than 15-20% for Indian companies over the next 12-18 months,” he said. corporate profits, he added.
The OECD added that the emergence of a new variant of the virus, especially if combined with a loosening of attitudes, is a major risk, as well as a less favorable global economic and financial environment.
Aside from a third wave, economic watchers have signaled growing concerns about inflation. Annual wholesale-based inflation hit a record 14.23% in November, fueled by higher prices for fuels, oilseeds, minerals, vegetable oils, base metals, wheat and fruits. The production of durable consumer goods had prolonged its contraction for the second month of October.
“Inflation is a concern today, with WPI hitting a new high and the CPI hitting the 5-6% range. In my opinion, this is the result of a combination of factors such as high world commodity prices, crop shortages in the domestic market, revised prices for services due to higher costs and the coverage of commodities. losses incurred during blockages (eg here’s recreation, education, tourism), transportation costs, etc. In my opinion, we cannot control this inflation, and it is here to stay, ”Sabnavis said.
“In addition, the recent wave of price increases suggests that margins have been under pressure this quarter. After the higher-than-expected net cash outflows sought in the second supplemental grant request, the pace of public spending is expected to crucially dictate whether the pace of GDP growth can significantly exceed 66.5% in the third fiscal quarter 22, ”added Nayar of CIFAR.
Some also pointed to the government’s slowness in meeting its goal of divestment of ??1.75 trillion, with strategic divestitures from Bharat Petroleum Corp. Ltd and the large initial public offering of Life Insurance Corp. of India scheduled for this year.
India’s evolution towards self-sufficiency in semiconductor manufacturing with a ??The 76,000 crore incentive plan aims to protect against expected supply chain disruptions in the post-covid world.
The country aims to reach $ 1 trillion in exports of services and goods each by 2030, even as outbound shipments are expected to cross the $ 400 billion mark in this fiscal year.
However, India is not part of any major regional trading bloc after leaving the Regional Comprehensive Economic Partnership (RCEP), led by the Asean group of nations, as the agreements did not benefit India and would have resulted in higher imports than exports.
Trade policy observers said India was already in negotiations with nearly 10 countries, including the European Union, the United Arab Emirates, the United Kingdom and Australia, to strike trade deals that could benefit the United States. country.
“Any new FTA signed must be assessed in terms of cost-benefit for Indian industry and should not impact the ‘Make in India’ for crucial products, but create an export boost by allowing a preferential access to certain markets, “said Bipin Sapra., partner at EY.
The government has implemented a series of measures to promote exports of goods and services, including the introduction of programs for remission of duties and taxes on exported products (RoDTEP) and remission of state levies and taxes and (RoSCTL), and authorized several arrears to facilitate trade liquidity.
The government has promoted the ease of doing business by introducing a common digital platform for Certificate of Origin and promoting districts as export hubs by identifying products with export potential in each district while by eliminating bottlenecks.
Export growth and assurance of local supply will also come from the recently introduced Production Incentive Program (PLI) in the mobile phone, electronics, drug and pharmaceutical sectors, which will further stimulate trade.
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