OPEN APP
Home / Economy / How will India fare as global growth sputters?

How will India fare as global growth sputters?

Photo: RutersPremium
Photo: Ruters

The IMF has cut global growth projections by 0.4 percentage points to 3.2%, while estimating 15% chance of a recession in G7. The RBI has said India has been fairly resilient amid global recessionary concerns. Mint analyses the implications of recent developments.

The IMF has cut global growth projections by 0.4 percentage points to 3.2%, while estimating 15% chance of a recession in G7. The RBI has said India has been fairly resilient amid global recessionary concerns. Mint analyses the implications of recent developments.

What is the emerging economic scenario?

The IMF said that risks are tilted towards the downside, prompting it to lower global growth estimates to 3.2% for 2022 from 6.1% in 2021. As per IMF, 2022 growth estimates for US, European Union, China, Russia and India stand at 2.3%, 2.6%, 3.3%, -6% and 7.4% respectively. The Asian Development Bank has also revised the FY23 growth forecast for India from 7.5% to 7.2%, while the Organization for Economic Cooperation and Development has revised its forecast from 8.1% to 6.9% for 2022-23 and 6.2% for 2023-24. The RBI in June maintained Indian growth projections at 7.2%.

What are the major areas of concern?

A major concern is higher-than expected inflation worldwide, which has resulted in a quantitative restrictive policy approach adopted by central banks, triggering tighter financial conditions. The US Federal Reserve increased interest rates by 0.75% a second consecutive time, while the European Central Bank raised key interest rates by 0.5%, the first in 11 years. Adverse economic outcomes of the Russia-Ukraine war; increasing prices of critical inputs such as crude oil and commodities and higher borrowing costs have prompted the IMF to warn about the possibility of a global recession.

Standing out
View Full Image
Standing out

What are the signals for the Indian economy?

India is expected to perform better than the rest, but with slower growth. Domestic economic factors showing signs of a broad-based improvement indicate that India will be able to weather the storm. Factors such as India being a preferred investment destination, revival in manufacturing and services sector, adequate foreign exchange reserves etc. have worked in its favour.

What are the positive developments likely?

IMF projections show US growth levels at 2.3% in 2022 and 1% in 2023. With the US economy expected to slow down, Federal Reserve might be compelled to reverse the tightening approach, resulting in foreign portfolio investments returning to Indian markets, driving up the rupee. Besides, the import payment burden is likely to be better with a stronger rupee and escalation in landed price of crude oil would get contained. The IMF update has stated that oil prices will peak this year and decline by 12% in 2023.

What are the limitations?

Though India is not an export-led economy, it relies on exports to support 18% of its GDP. With the world expected to slow down, export performance is bound to suffer and slow job creation. Also, with assembly elections from end 2022 and in 2023, followed by the general elections in May 2024, revenue expenditure may be in for an increase, apart from heavy expenditure on the electoral process. This would result in rising inflationary pressure.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH

 

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

×
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout