The challenging combination has again underlined the urgency of close fiscal-monetary policy coordination.
There is a wide consensus that India’s gross domestic product (GDP) will grow at 7%-7.5% during 2022-23. Growth forecasts of the Reserve Bank of India (RBI), International Monetary Fund (IMF), World Bank and other agencies are mostly in this range. Our own forecast is 7.3% (S. Mundle, R. Bhattacharya & D. Nayak, NIPFP Policy Brief). However, no one—least of all policymakers—should believe that the Indian economy is now on a strong recovery path. The expected high growth in 2022-23 is mainly attributable to the strong base effect of the slowdown in the first quarter of 2021-22 following the deadly spread of the Delta variant of covid. Stripping out this base effect-driven high growth of 13.5% in Q1 2022-23, growth during Q2, Q3 and Q4 of 2022-23 will average less than 5%, according to our forecast and that of others. Thus, growth remains weak and way below the 6.3 % trend rate maintained prior to the pandemic’s outbreak.