The inception of a new year not only brings a new calendar date but with that comes new opportunities, endeavors, challenges and importantly, learnings from the past experiences. So is with the economy also when it enters its New Year, in economic terms we call it by ‘Financial Year’ (FY). Indian economy has been entered into the FY 23 with a lot of aspirations, ambitions to be accomplished and hurdles to be tackled. FY 23 started in the midst of ongoing war in Ukraine, walking inflationary pressure, transition period towards monetary tightening and lowering growth forecast. But, there are some positives also such as, unprecedented merchandise exports, roll out of PLI scheme, major companies like Apple producing in India and India being fastest major economy.
Challenges to rein in
FY 22 started with the a severe and drastic Covid-19 2nd wave which slowed down the pace of the economy which it took after the 1st wave. But the economy has steadily recovered well in the later phase of the period. With this recovery, there are some hard questions whose answers must be answered. Among them is walking inflation, which has increased to 6.95 % in March 2022, highest since October 2020. Food inflation accelerated for a 6th straight month to 7.68 %. The Monetary Policy Committee (MPC) in its April review meeting revised the inflation forecast to 5.7 % from previous 5.3 %, citing surging commodity prices. It is evident that the inflationary pressure is gradually increasing which is likely to hurt the growth forecast also. RBI has also signaled in its change in monetary stance to monetary tightening from accommodative approach it adopted from last 10 MPC meetings. “The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”, says RBI’s MPC April meeting report. ‘Inflation above growth’ approach has been hinted by the RBI governor. So, a major challenge for India in FY 23 would be to keep growth intact with reining inflation.
However, the main cause behind this inflation in 2022 is ongoing war between Russia and Ukraine due to which petroleum prices has soared by about 30 percent. The increase in crude oil prices has become an extra burden on individuals and firms, which is increasing prices and making pressure. IMF in its recent World Economic Outlook has slashed India’s economic growth forecast to 8.2 % from 9 %. The trade and payment settlement system between Russia and India has also been affected. It must be ensured that war crises does not dent India more in near future.
In 2021-22, India achieved unprecedented $ 400 bn of merchandise exports and $ 670 bn in total exports but that could not reverse the trajectory of trade deficit. India’s trade deficit rose by 87.5 % to $ 192.41 bn in the same period. The sudden oil price increase also contributes in that but in FY 23, it will be a big challenge to curb imports and reduce the trade deficit.
Robust prospects
For the 1st time in history, India achieved $ 400 bn of merchandise exports in FY 2021-22 and overall exports of $ 670 bn. The record exports were led by petroleum products, electronic products, agricultural products and many more. Though, trade deficit widened but exports prospects in the next are very robust, as the country is going to set the target of $ 800 bn of exports in FY 23 and making India an export hub. The recent Ukraine-Russia crises has posed some issues against the economy but it has also opened the gate for many MNC’s to shift their production in other economies and among them India is on top of the list. Recently, the I-phone maker Apple has also started manufacturing I-phone 13 in Chennai, a big boost for make in India. Apple’s move to make in India will encourage other global players to look forward towards India as a manufacturing hub which is very much inevitable.
As per a survey conducted by Confederation of Indian Industry (CII), India is among the top list of 67 % of MNC’s to make FDI inflows. Skilled and cheap labor, stable government, steady growth is the reasons that can make India an FDI hotspot. The investment is also derived by the PLI scheme that government has launched in 14 sectors with an investment of Rs.1.97 lakh crore. The government expects the scheme to generate additional output worth Rs 28.15 lakh crore and 6.45 million new jobs over the next five years. “In the next few years, PLI units will have additional production to sustain exports on a sustainable basis,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. The heavy push by the government for local manufacturing will make the exports more resilient and competitive.
The Union Budget 2022-23 also sounds very promising for the economy as capital expenditure for the year has been surged by about 35 %. Gati Shakti Scheme and emphasize on infrastructure development will also spur more companies to invest in India. Schemes like, ‘One Station-One Product’ will also give a confidence and boost to local and traditional products of different cities and states. The revenues from GST have also been resilient in the previous year with more than Rs. 6 Lakh crore of collections and are very likely to continue in FY 23 also. A solid base of revenue will give more cushion to the policymakers also.
Although, there will be a set of challenges in the growth journey of FY 23 yet many robust growth opportunities and prospects are waiting for the economy. An inclusive planning and coordinated implementation of the schemes and policies will be the key in the coming year.
References
RBI, Monetary Policy Report, April 2022
IMF, World Economic Outlook, 2022
The Economic Times, April 21st
Confederation of Indian Industry, Survey, Oct 2020
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