The NSO’s first advance estimates of national income peg India’s GDP growth at 9.2% in FY22 compared to a 7.3% contraction in FY21. With the economy likely surpassing the pre-pandemic level by March, it appears to be a season of possibilities. While the IMF suggests that India could be the fastest-growing Asian economy in 2022 in real terms, and the only one in the continent to grow in double digits in nominal terms, market research firm Jefferies believes the country has already entered an economic supercycle driven by a decisive housing cycle turnaround. Likewise, IHS Markit Ltd predicts that India will likely overtake Japan as Asia’s second-largest economy by 2030. Currently, we are the sixth-largest economy in the world, behind the US, China, Japan, Germany and the UK.
The projected 9.2% growth rate quickens the pulse, but one must note it’s on a low base. Moreover, the biggest component, i.e. consumption, is not fully out of the woods. Services sector, the lifeblood of any economy, too is desperately making it from one day to the next. And both are staring right at the enemy (Omicron infections) fearing lockdown-like restrictions, which could knock them out thrice over. Even if the economy somehow manages to escape the effects of a potential third wave, there’s another proverbial elephant in the room—inflation. As Morgan Stanley notes, the significant price rises among major economies, coupled with supply-chain disruptions and labour shortages, offers a clear signal for central banks to raise rates. But such a move could stop recovery in its tracks, particularly because consumption and investments are barely picking up.
As we have seen, China, which withdrew policy support and tightened regulation, suffered a mini-slowdown last year. While the Indian economy is rebounding strongly, helped by structural reforms and rising vaccination rates, some key components of an economic cycle are yet to make a 360-degree turn. Put simply, 2022 may well be the year of The Great Rebalancing involving the central bank to proceed with calibrated policy easing followed by a fiscal plan that prioritises expenditure with foresight to avoid another economic coma.