Economic
Highlights
New Delhi, 11 April 2022
RBI MPC Estimate
GROWTH LOWER, INFALTION HIGH
By Shivaji Sarkar
The feel good factor may be impacted as the Reserve
Bank of India estimates the growth to remain lower, inflation to remain high,
and crude prices to be around $100 a barrel.
The RBI Monetary Policy Committee’s (MPC) revised assumption of the crude oil price
for making inflation and growth forecasts is sharply higher than the previous
one. The growth estimates to lower to 7.2 per cent from 7.8 per cent
even as it keeps repo rate unchanged at 4 per cent and reverse repo at 3.35 per
cent. Inflation is averaging 6.3 per cent in the first quarter (April-June
2022), 5 per cent in the second quarter, 5.4 per cent in the third quarter, and
5.1 per cent in the fourth quarter (January-March 2023) will be a concern.
Inflation projections have been
primarily revised upwards due to war-induced factors, according to RBI Governor
Shaktikanta Das. “In the sequence of priorities, we have now put inflation
before growth. Time is appropriate to prioritise inflation ahead of growth,” he
said. It
may entail difficult times as government finances may be impacted in meeting
the inflationary pressures.
The Centre for
Monitoring Indian Economy (CMIE) finds the rate of recovery slowing down after
the second pandemic wave can reduce consumer sentiments and by March 2023 it
could be 15 per cent lower. On the other hand, with 83 unicorns valued at $277,
it would be able to create 11 lakh jobs, Nasscom-Zinnov says. The net non-farm
employment growth has to sustainably rise till 2030 at 1.5 per cent a year so
that there are at least 9 crore jobs. This may get delayed as due to lower
consumer sentiments, manufacturing and other activities can be affected.
The challenges
are many. India’s foreign exchange reserves
(forex) came down by $14 billion though it is still considered comfortable
with $619 billion reserves. The value of gold reserves also decline by $1.831
billion to $42.011 billion.
Proposals for foreign investment in infrastructure are
fraught with risk. There are suggestions from former RBI Governor Bimal Jalan
that infra development should be done in rupees. This would hedge the rupee as
well as the economy. Higher FDI would also have higher outgo in repatriation. Jalan
suggests tax cuts and says rising petrol prices, supposedly highest in the
world, are concerns. As the UNCTAD had predicted in its Asia-Pacific report, it
is stoking discontent as viewed by the strike of cabs against CNG price hike.
No action is off the table when the need is
to safeguard the Indian economy, Das says. Some more belt-tightening is
possible though the Centre may like to adhere to the possible extent to its
budgetary programmes.
Meanwhile, the government accepting the International
Energy Agency’s initiative has joined its initiative of a coordinated release
of 120 million barrels of oil from its emergency reserves to calm oil prices.
The petroleum ministry is looking at the way it can outreach the IEA
initiative. India has a daily
consumption of 4.5 million barrels and a reserve of 39 million barrels, not
considered high. In November 2021 too it had agreed to release 5 million
barrels from its reserve as part of US-led initiative for lowering crude
prices, when it breached $ 80 a barrel.
These initiatives impinge on smooth growth of the
country. The CMIE says that the slower recovery does not
bode well. Various international impediments add to risks. Such consumer
sentiments can impact spending and therefore, growth in private final
consumption expenditure that accounts for about 55 per cent of the country’s
GDP.
The consumer
sentiment expanded by 5 per cent in January but in March it declined to 3.7 per
cent. The average monthly rate of increase during the last three months has
been 4.23 per cent. It would take three years to recover to the pre-covid level
provided there is no other jerk to the economy. The RBI apparently took a note
of it.
The Ukraine war related sanctions
imposed by the US affects India’s exports to an extent as well. The
relationship with Russia though good is at a low level. The trade is less than
2 per cent. In the present circumstances, it may not be able to increase. The
new insurance conditions prohibiting flights to Russia and Ukraine has led to
Air India suspending its flights to Moscow. The Russian carrier Aeroflot has
also stopped its flights to Delhi. India has reaffirmed its ties with Russia
though it also faces western pressures amid its suspension from UN Human Rights
Commission. India may have to reposition its diplomacy.
The government has taken to various
international tie-ups to tide over the crisis. The latest free trade pact with
Australia is a move to counter China. It is a trust, Australia says, it has in
India. It opens up avenues for coal and other raw material imports as well as
is likely to exports of garments, pharmaceuticals, steel and other products.
The exports to Australia are at mere $ 345 million. It also allows Australian
liquor and other companies to set up their units in India.
Another decision to invite Gulf
country companies to invest in Kashmir is being seen as a major gain. These
companies in their meeting with the governor say they have spotted 4226 sites
for setting hotels, tourism centres and factories under the FTA with UAE. While
this is being considered a good move for development of the state, it also has
raised certain concerns within the parivar.
Meanwhile, phasing out imports of
101 more defence items will give a push to self-reliance and save forex. The
plan is to make the country a global hub for defence manufacturing. It could be
a big forex earner as well as create an aura for the country.
It is hoped that these would
gradually tide over the balance of trade issue. At present, despite $400 of
exports there remains trade deficit of $192 as imports in value terms have
become expensive. It also adds to forex loss despite higher earnings. It is not
easy to tide this over as rupee continues to slide beyond Rs 75. In the present
global scenario boosting the rupee is a herculean task.
Amid these problems, FDI has
increased to over $560 million. It shows the confidence of the investor in the
country’s policies. The country is going through a difficult phase but it has
to get over it for a bright future. ---INFA
(Copyright,
India News & Feature Alliance)
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