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Economic activity in India is recouping from a brief spell of moderation in January in view of the less virulent effects of Omicron, with domestic macroeconomic conditions striking a path that is diverging from global developments, as per an assessment by a team of central bank officials.
Recovery in economic activity is gaining strength and traction in the country as it emerges from the third wave, according to an article in the Reserve Bank of India’s latest monthly bulletin, put together by a team of 20 officials
“Better planning and strategy, management of supply chain logistics and accelerated digitalisation helped firms mitigate pandemic risks.
“Unlike in the first two waves, overall consumer and business confidence stayed resilient on the back of the accelerated pace of vaccination, better prospects on the general economic situation, household incomes and spending,” the authors said.
They emphasised that notwithstanding this unsettled global environment, the domestic economic situation continues to improve.
Uptick in business confidence
The officials noted that both manufacturing and services remain in expansion with optimism on demand parameters and uptick in consumer and business confidence.
As businesses return to a new normal, the job landscape is expected to improve, they added.
“Farm sector conditions remain robust albeit with some signs of rural demand slackening.
“Even as monetary policy remains accommodative, global spillovers have led to a tightening of financial conditions. Higher spending and ease of doing business have brightened the outlook,” RBI officials said.
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‘Growth to be quickest’
Echoing RBI’s views, the Department of Economic Affairs (DEA), in a report released on Wednesday, said: “ India is the only large and major country listed by the IMF whose growth projection has been revised upwards (from 8.5 per cent to 9 per cent) in 2022 (Read 2022-23). “
“In a testimony to the resilience of its people and the farsightedness of its policymaking, the Indian economy that contracted by (-)6.6 per cent in 2020-21, is now projected in 2022-23 to grow the quickest among the league of large nations,” the report added.
GDP forecast
RBI, in its latest monetary policy review, had projected a real GDP growth of 7.8 per cent in FY23 against the Economic Survey’s projection of 8-8.5 per cent. Union Budget’s implied real growth projection is about 8 per cent.
According to the DEA report should retail inflation remain range-bound at 4.5 per cent as projected by the monetary policy committee (MPC) in 2022-23, liquidity levels in the economy will remain high and interface with low-interest rates to provide easier financing options to industry and individuals.
The improvement in the economy is also driving up corporate India’s advertisement spending and salaries to employees. The Pitch Madison Advertising Report, 2021, released on Wednesday projects a 20 per cent growth in advertising expenditure (ADEX) in 2022 to ₹89,285 crore from ₹74,231 crore in 2021. “After battling two waves of Covid in the last two years, commercial activities have returned with a vengeance and the report estimates that India will continue to be the fastest-growing advertising market in the world followed by Russia at 14 per cent, the US at 13 per cent and China at 11 per cent. Global AdEx is estimated to grow at 11 per cent” the report noted
According to Aon Plc’s latest salary survey, India’s salary projections are the highest among BRIC nations and the developed world. Roopank Chaudhary, partner in Aon’s Human Capital Solutions in India, said, “We believe that the fundamentals of the Indian economy remain strong and that there is a positive business sentiment. Even sectors that struggled during the first wave of the pandemic, such as retail, logistics and quick-service restaurants, have bounced back by focusing on modern trade/digital channels, which is reflected in salary increases of 8 percent and above. However, we do see some potential headwinds due to anticipated high inflationary pressures and the still-prevalent Covid-19 threat.”
Global economy at inflection point
The central bank officials opined that the global economic outlook continues to be held hostage by the pandemic, even as geopolitical face-offs and intensified volatility in financial markets impart uncertainty.
Supply chain disruptions, strains in production lines, energy price volatility and wage pressures entail upside risks to inflation, sharpening the policy trade-offs, they said.
“Today global economy stands at an inflection point. Inflation has become entrenched across economies owing to a spike in commodity prices and persistence of supply chain bottlenecks.
“The global macroeconomic situation remains embroiled in a heightened state of uncertainty, with risks tilted to the downside,” per RBI authors.
They cautioned that investor sentiment has been dampened by risk aversion, which could unsettle capital flows and impede the embryonic recovery going forward.
RBI officials also warned that risks to emerging market economies (EMEs) in the form of capital outflows, depreciating currencies, and deteriorating fiscal positions have heightened and darkened the outlook.
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