At the onset of 2022-23, the Indian economy was expected to grow anywhere between 7.2%, as per Reserve Bank of India projections, and 8.2%, as per the International Monetary Fund forecast, with major rating agencies and financial institutions pegging their projections in the middle. Having bounced back 8.7% last year from a COVID-triggered nadir, the moderation in economic growth was not a big deal even as the ripple effects of the war in Europe had begun and inflation had been high since January. By early September, the range of most forecasts shifted to 6.7%-7.7%. The RBI, Asian Development Bank, and Fitch Ratings have lowered their estimate to 7%. S&P Global Ratings retained its forecast at 7.3% and Moody’s Investors Service pared it to 7.6%, but both believe the emerging global slowdown will not derail the post-COVID recovery. The outlook is not so benign any more, the World Bank has suggested, based on inputs as recent as the last week of September. From its initial expectation of 8% growth this year, which it cut to 7.5% in June, the Bank has laid out a gloomier outlook with growth of just 6.5%, citing the worsening external environment.
After the 13.5% expansion in the April-June quarter, high-frequency economic indicators point to a healthy uptick through August. But growth appears to have stumbled a bit in September with goods exports contracting for the first time since February 2021 and imports growth also slowing sharply, signalling lower domestic demand. The Bank’s latest forecast suggests a relative slowdown starting in the October-December quarter, with tighter global liquidity, higher inflation (oil prices are surging again after the OPEC meet) and rising interest rates denting domestic demand. At the same time, the demand for exports will shrink further and private investment will likely prefer to sit out this period of heightened uncertainty. Private consumption, in particular, will be affected this year and next, the Bank has reckoned, especially as the pandemic’s scars on income and employment levels persist for rural and low-income households. As many as 56 million Indians may have slipped below the poverty line in 2020, it estimated. The government has been gung-ho about “entering an era of robust growth”, but its decision to extend the pandemic-driven free foodgrains programme suggests it realises that not all actors of the economy have managed to get out of the woods yet. This realism should be reflected in other policy choices it makes too, tempering optimism with caution.
