India’s Economic Outlook - FY 2023
As we set our foot into the financial year 2022-23, some of the major challenges that are staring at the face of the global economy in general and emerging economies like India in particular, can be summarized as follows:
Ø The war in Ukraine and the resulting sanctions on Russia’s central bank have led to questions about the future of the dominant role of the US dollar
Ø Among the most pressing vulnerabilities of Ukraine war is an overreliance in Europe on natural gas and crude oil from Russia
Ø Disruption to upstream suppliers in Russia and Ukraine will further weaken global supply chains
Ø Three structural challenges for the global economy, namely, climate change, inequality and demographic change are also quite significant. Their immediate effects are much weaker than their long-term ones, and so decision-makers procrastinate over policies that could mitigate the worst effects
Ø The number of counties which are on the verge of going bankrupt is on the increase with Sri Lanka being the latest entrant. According to analysts, the bankruptcy of Pakistan, which has military nuclear potential, may be the most dangerous for the world’s economy.
Against this backdrop, the World Bank Group in their recent ‘Global Economic Prospects’ report has highlighted that global growth is expected to decelerate markedly from an estimated 5.5 percent in 2021 to 4.1percent in 2022, reflecting continued COVID-19 flare-ups, diminished fiscal support, and lingering supply bottlenecks. Global growth is projected to soften further to 3.2 percent in 2023, as pent-up demand wanes and supportive macroeconomic policies continue to be unwound.
In emerging market and developing economies (EMDEs), various downside risks cloud the outlook, including simultaneous Omicron-driven economic disruptions, further supply bottlenecks, a de-anchoring of inflation expectations, financial stress, climate-related disasters, and a weakening of long-term growth drivers.
Indian economy may not be affected as badly as other emerging markets, thanks to the broad range of fiscal, monetary and health responses made intime to mitigate the pandemic crisis. Moody’s Investors Service latest report has raised India’s gross domestic product (GDP) growth forecast to 8.4% for 2022-23 from 7.9% estimated earlier on the back of stronger-than-expected post-pandemic economic recovery, supportive monetary policy, and a growth-oriented budget. However, high oil prices and supply distortions will remain a drag on growth, the ratings agency has cautioned.
Though policy steps have helped mitigate the impact of pandemic, rising fuel prices due to escalation in Russia-Ukraine situation, repeated supply shocks, overly tight monetary policy, fallout from China's property market downturn and rising social discontent due to greater poverty / inequality all pose formidable challenges to India’s growth.
