Forecast puts oil prices at $70-75, marking inflation and tight liquidity as further risks
The Economic Survey for 2021-22 tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha expects GDP to grow from 9.2% this year and 8% in 2022-23 to 8.5%, even as there is a tightening of Concerns have been expressed about the implications. Inflation and energy prices.
“Growth in 2022-23 will be supported by broader vaccine coverage, benefits from supply-side reforms and easing of regulations, strong export growth, and availability of fiscal space to increase capital spending. The coming year also augurs well for increased private sector investment, with the financial system being well positioned to provide support for the revival of the economy,” the survey estimated.
The Survey’s GDP growth forecast for the coming year is based on the assumption that ‘no further debilitating pandemic-related economic disruption, normal monsoon, global liquidity exits by major central banks largely settled, oil prices’ will be in the US$70-$75/bbl range, and global supply chain disruptions will decrease steadily during the year’.
The survey acknowledged the risks that emerged at the time, such as the new COVID-19 variant, Omicron, sweeping the world, a surge in inflation in most countries, and the cycle of liquidity withdrawals being initiated by major central banks.
It highlighted that the country’s macro-economic stability indicators on the external front, fiscal front as well as financial sector health and inflation were well placed to meet the challenges of 2022-23. One of the ‘reasons’ for this comfortable position, the survey argued, was the unique response strategy of the government which did not ‘pre-commit to a harsh response’ but on the basis of information ‘use the safety net for the weaker sections’. option selected’.
While the 9.2% growth forecast for 2021-22 suggested a recovery above the pre-pandemic levels of 2019-20, the survey acknowledged that private consumption and segments such as travel, business and hotels had not fully recovered . “The stop-start nature of repeated pandemic waves makes it particularly difficult for these sub-sectors to gather momentum,” it said.
“The latest advance estimates suggest a full recovery of all components on the demand side except for private consumption in 2021-22. Compared to pre-pandemic levels, recovery is most significant in exports, followed by government consumption and gross fixed capital formation,” it noted.
investment recovery
The country’s investment to GDP ratio rose to 29.6% in 2021-22, the highest level in seven years, the survey explained, adding this capital formation to the government’s policy ‘virtue of growth through capex and infrastructure spending’ was attributed to accelerate the ‘Chakra’. Increase in capital formation in the economy.
Citing record corporate profits in recent quarters and high mobilization of risk capital by firms, “While the recovery of private investment is still at an early stage, there are several signs that indicate that India is poised for strong investments.” “
Inflation, current account worries
“Inflation has reappeared as a global issue in both advanced and emerging economies … India needs to be wary of imported inflation, especially from high global energy prices,” it also said, here. It has even suggested that wholesale prices are in double digits inflation will ‘even out’ in recent months.
However, imports saw an equally strong recovery, with India’s net exports turning negative for the first half of the year, from a surplus in 2020-21. Thus India posted a modest current account deficit of 0.2% in the first half, but strong capital inflows in the form of continued inflow of foreign investment were enough to finance it, it pointed out.
“Higher global commodity prices, revival in real economic activity driving higher domestic demand and rising uncertainty around capital flows could further widen the current account deficit during the second half of the year. However, it is expected to be within manageable limits,” it said.
Criticizing that the ‘Atmanirbhar Bharat approach’ marks a ‘return to old school protectionism’, the survey concluded that “…
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