Against the backdrop of a slowing global economy, higher interest rates and a lack of pick-up in consumption will create challenges in the second half of the year.
Release Date – 12:20 AM, Fri – 2 December 22
Against the backdrop of a slowing global economy, higher interest rates and a lack of pick-up in consumption will create challenges in the second half of the year.
Hyderabad: Trends emerging in the country’s economic performance reflect mixed results as India launched a retail digital rupee on Dec. 1 to experiment with digital finance. The economy grew at a rate of 6.3 percent in the July-September quarter, down from 13.5 percent in the previous quarter. Manufacturing and mining contracted by 4.3% and 2.8%, respectively, while production growth across eight major industries slowed to a 20-month low of 0.1% in October as output of crude oil, natural gas, refined products and cement contracted.
Soaring prices have forced the Reserve Bank of India to raise borrowing costs to keep inflation within a tolerated range of 2-6%. The central bank is expected to remain hawkish in next week’s monetary policy review after raising its benchmark interest rate by 190 basis points this year. However, with agriculture and services growing by more than 4% for the third consecutive quarter, it can be said that the economy continues to recover after the adverse effects of the Covid-19 pandemic, although the GDP figure was lower than expected.
Against the backdrop of a slowing global economy, higher interest rates and a lack of pick-up in consumption will pose challenges in the second half of the financial year. Experts predict the economy will slow in the third quarter due to global headwinds and slower export growth. The center’s fiscal deficit at the end of October hit 45.6 percent of its full-year budget estimate, compared with 36.3 percent a year earlier. In fact, the fiscal deficit (difference between expenditure and revenue) for the April-October period was Rs 7,581.37 billion.
Among the eight key sectors, agriculture posted a 4.6% increase in GVA (gross value added) in July-September, compared with 3.2% a year earlier. GVA in trade, hotel and transport services increased by 14.7%, while construction and financial services increased by 6.6% and 7.2%, respectively. Tighter global financial conditions have fueled recession fears and hurt India’s external finances. The country’s merchandise exports surged nearly 200% in April 2021, but have now contracted nearly 17% in October. While pandemic-related restrictions are fading away, upcoming festive demand and high government spending are expected to offer another silver lining to growth.
Despite the slowdown in GDP growth, India remains the fastest-growing major economy, ahead of China, which will grow by 3.9% in July-September 2022. Two bright spots stood out: Private Final Consumption Expenditure – a measure of goods consumption and consumption. Personal services – a year-on-year increase of 9.7% in July-September, while gross fixed capital formation – a proxy for investment activity – rose 10.38%. Looking ahead, while a recovery in domestic economic activity has yet to become broad-based, a prolonged global drag, lower corporate profitability and a dimming global growth outlook are expected to weigh.
