Economic activity in India is set to gather steam in the new year

First, the latest data print indicates that the economy is on a rebound after the economic disruption caused by the second pandemic wave is overcome. India is among the few economies that have posted impressive growth rates for four consecutive quarters, even in the midst of a Covid wave, indicating that the worst is behind us. We expect that, going forward, Gross Domestic Product (GDP) growth will accelerate and pick up momentum, culminating in strong growth of 9.5% or more in FY 2021-22.

Other positives to look forward to in the new year include continued export buoyancy, growth in tax revenues (particularly GST), improving manufacturing growth (as indicated by the Purchasing Managers’ Index), shrinking bad loans with banks. Rapidly growing corporate profits, a steady increase in the number of unicorns in the country and an impressive inflow of foreign investment.

In addition, India has delivered nearly 1.4 billion doses of vaccine to its population through timely interventions such as Tika Utsav and allowing walk-in vaccinations. The world’s most ambitious vaccination campaign has contributed strongly to increasing economic growth, in addition to protecting lives and livelihoods. Not surprisingly, the International Monetary Fund is optimistic about our economy and projects that India will retain the tag of the world’s fastest growing economy, with annual growth expected to reach 8.5 percent in 2022. Some other growth drivers are detailed below.

First, the incentives given by the government to increase public investment will play a vital role in reviving our economy. The government has taken concrete steps to boost its capital expenditure in sectors such as infrastructure, on which its focus is based on several initiatives. In addition to the National Infrastructure Pipeline, the recently announced Gati Shakti Yojana to boost overall infrastructure development and the National Monetization Pipeline, we also have the National Bank for Financing Infrastructure and Development which aims to meet India’s infra funding requirements . In the process, private investment must rush in and rekindle a new demand cycle in the economy. The ratio of gross fixed capital formation to GDP at current prices crossed 28% in the second quarter of 2021-22, which is higher than the first quarter, indicating an increase in investment. The mood of the industry is upbeat and there is a new belief that investment and demand will revive as we step into the new year.

The second major positive is an improvement in consumption spending due to the reopening of the economy, driven by an improved pandemic situation and the aforementioned vaccination campaign. Another good sign is strong equity fund mobilization, which has helped in recovering the risk capital that was destroyed by the impact of the pandemic.

Third, several important reforms announced by the government have done a lot to revive the growth momentum and will further boost investor sentiment. For example, India’s Production-Linked Incentive (PLI) schemes—which aim to make the manufacturing sector globally competitive and sustainable—are an important step towards fulfilling the country’s vision of a self-reliant India. As envisioned, the plan should address regional inefficiencies, create economies of scale and ensure efficiency in domestic manufacturing, which in turn will help drive growth.

Fourth, the favorable global economic environment and strong external demand will continue to strengthen our exports in the new year. Indian exporters are riding the tidal wave of global market growth. As a result, India is well within reach of achieving its $400 billion export target for 2021-22. This dynamic export performance is expected to continue as global growth accelerates further in 2022, which will have a beneficial impact on our GDP growth.

No doubt there will be challenges ahead. Rising global crude oil prices, proposed hikes in policy rates by the US Federal Reserve, rising protectionism among advanced economies and geopolitical uncertainties may contribute to instability in the global and domestic economic landscape.

Although we face the global threat of new COVID forms emerging (such as Omicron), the extent to which our economy will be affected in 2022 is the severity of the disease afforded by universal immunization of all adults with two doses and one booster. will depend on security. Much will also depend on a calibrated and coordinated response so that the Center and states can ensure uninterrupted supply chain continuity and free movement of people with strict COVID-appropriate behavior protocols, thereby minimizing the scope for disruption of economic activity.

It is also heartening that the cycle of private investment is accelerating. A recent survey of CEOs of over 100 top corporates by the Confederation of Indian Industry showed that over 50-60% are planning for capital expenditure in 2022-23. This has been largely due to an increase in capacity utilization due to an improvement in both domestic and external demand.

To conclude, on balance, it can be predicted that the Indian economy is set to further consolidate its gains and top for growth of 8% or more next year.

Chandrajit Banerjee is the Director General of Confederation of Indian Industry