India's Economic Outlook 2022

According to a report by The Economic Times, "The Indian economy is expected to grow by 9.5 percent in the fiscal year 2022." Thanks to increased public infrastructure investment and a boost in private investment. India is one of the fastest-growing major economies with high inflation pressure. The outlook assumes that advancement in COVID-19 vaccinations will continue and any new virus variants will be of limited severity. Although private consumption remains below pre-pandemic levels, increased mobility, increasing customer confidence, UPI transactions, GST collections, and industrialization utilization all point to economic recovery. The government's increased capital expenditure targets and investments in infrastructure and manufacturing private sectors are expected to lower the unemployment rate by creating jobs, which was at a six-month high of 8.1 percent in February 2022.

The growth also considers the consequences of Russia's invasion of Ukraine, namely higher global oil and commodity prices, which will add to higher inflation and a broadening of the current account deficit. The Russia-Ukraine crisis erupted just as the global economy appeared to be on the verge of recovery after escaping the worst of the COVID-19 pandemic. As a result, crude oil and fuel prices, grains such as wheat and corn, and various other commodities have skyrocketed. India is not immune to the consequences of the ongoing conflict, and economic ramifications through multiple channels are sure to emerge as uncertainty levels remain elevated. India is still a net importer of energy, so the steep increase in crude prices significantly shocks India's macroeconomic framework. Crude oil prices stay above $100 per barrel, wheat prices have increased by 50% in the last two weeks as of 20th May 2022, and edible oil prices have increased by 20%—all of these are essential imports for India.

GST collections reached an all-time high of 1.68 lakh crore in April 2022, implying positive economic activity even after several headwinds and improved tax compliance. The April figure is up 20% year on year and 25,000 crores higher than the previous high of 1.42 lakh crores in March 2022. Inflation will rise to 5.8 percent in FY2022 as oil prices rise. The current account deficit is expected to rise to 2.8 percent of GDP in FY2022 due to rising oil imports before declining to 1.9 percent in FY2023 due to increased export growth. Foreign direct investment inflows are expected to be moderate as global uncertainty rises and global economic and financial conditions tighten.

In a significant shift in policy, the US Federal Reserve announced in March that it would finish its pandemic-era bond-buying and raise interest rates three times next year to combat rising inflation. The rate hike and fund decline are likely to impact the cost and availability of foreign finance for Indian companies. Foreign portfolio flows into Indian stocks and bonds may slow. The increase in interest rates in the United States by the FED may also cause global funds to withdraw from Indian securities. The Indian central bank may raise interest rates to protect FPI outlays from the Indian bond market. FPIs removing funds from equity and bond markets may weaken the rupee even as the dollar strengthens with rate hikes. The Indian rupee has reached its all-time low at 77.78/$1 on 19th May 2022 up till now while the dollar has strengthened against other major currencies. The Reserve Bank of India has increased its involvement in the currency market, slowing the rate of decline. The Indian rupee, which has depreciated by around 4% in 2022, has come under pressure due to Russia's invasion of Ukraine.

Another few months will be crucial for India's economy as the federal govt and the RBI work to balance the pressures on inflation, monetary system, external records, and fiscal deficit. The good news is that India has been fighting the pandemic for over two years and has emerged more robust. The hope is that the present economic pressures will pass as well!