Indian Economy and the current geopolitical factors
- At this time last year, India’s economy was on the cusp of a recovery from COVID-19, though Omicron posed fresh speed bumps for the rebound.
- With oil prices escalating, commodity prices volatile and shipping disruptions hitting supply chains, U.S. recorded a 40-year high inflation rate in 2021 and ripple effects were expected to flare up around the world.
Why did 2022 turn out to be a rougher storm than most anticipated?
- Russia-Ukraine war
- Complete disruption in supply chains: particularly for food and energy
- Large food subsidies: for the poor: initiated in the pandemic
- Escalation in the fertiliser subsidy bill: due to higher global prices.
- Recession: mainly due to supply shocks.
- Slowdown in manufacturing and exports
- Inflation: flared up to the 6% upper tolerance threshold set for the central bank in 2022
Measures by the Govt
- Ban on wheat exports: curbs on a few other food items’ exports
- Reining in high raw material costs for industry: owing to runaway commodity prices.
- Frozen petrol and diesel prices: through most of this year
- Steps to check cereals and pulses prices: to be ‘felt more significantly’ in coming months.
Outlook for 2023
- Fluctuated growth expectations: as have growth rates skewed by pandemic base effects.
- Broad resilience amid strong external headwind: due to consistently growing farm sector and consumers catching up on pent-up demand for contact-intensive services that have now recovered to pre-COVID levels.
- Recession for most developed nations: which will dent demand for India’s exports.
- Continuation of Ukraine conflict
- Fresh fears of a new COVID-19 variant
- Global monetary tightening
- Warning of the next financial crisis: emerging from private cryptocurrencies.