Roundup: India’s economy sees robust growth, challenges ahead

However, uncertainties of the world economy and rising inflation driven by price hike of international commodities have become main challenges for India, the third largest economy in Asia. According to official data released in late February, India’s GDP in the 2021-2022 fiscal year ending March this year surpassed that of the pre-pandemic 2019-2020…

by Zhang Yadong

MUMBAI, April 28 (Xinhua) — Helped by a series of fiscal and monetary policies, the Indian economy has seen robust growth, but pressing problems need to be addressed in the road ahead.

Given strong growth of foreign trade, the Indian economy is recovering from the COVID-19 pandemic, with efforts being made to advance manufacturing and infrastructure sectors.

However, uncertainties of the world economy and rising inflation driven by price hike of international commodities have become main challenges for India, the third largest economy in Asia.

ROBUST GROWTH

According to official data released in late February, India’s GDP in the 2021-2022 fiscal year ending March this year surpassed that of the pre-pandemic 2019-2020 fiscal year.

India’s GDP for the 2021-22 fiscal year rose by 8.9 percent. The faster-than-expected recovery was reflected in India’s economic activities, with the S&P Global India Manufacturing Purchasing Managers Index (PMI) reporting 54.0 in March, the ninth consecutive month of expansion.

India’s service sector is also expanding, with Services PMI rising to 53.6 in March from 51.8 in February. Pollyanna De Lima, economics associate director at S&P Global, said that increased domestic demand in India has contributed to the expansion of the tertiary sector.

Moreover, sound performance in foreign trade has been shown. In the 2021-22 fiscal year, India saw exports achieve a record-high in growth after years of decline. Service trade exports reached 250 billion U.S. dollars, an increase of 21.31 percent over the previous fiscal year, while commodity trade exports reached 419.65 billion dollars, a rise of 44 percent.

The rapid development of India’s foreign trade has led to a significant improvement in the export structure as it now shows India’s manufacturing capabilities and growth in high-tech products, electronics and agricultural products.

This has also led to a significant improvement in consumer confidence and employment. A survey conducted by the central bank in 13 major cities in India showed that the consumer confidence index further rose to 71.7 in March from 64.4 in January.

Unemployment rate fell to 7.6 percent in March from 8.1 percent in February.

CHALLENGES AHEAD

Local analysts say that India is now facing some pressing problems which could hurt the potential growth of the Indian economy, with the tightening U.S. monetary policy, the gloomy prospects for the world economy and the Russia-Ukraine conflict casting shadow over the Indian economy.

The Reserve Bank of India (RBI), the central bank, has said recently that since the early February monetary policy meeting, with the escalation of geopolitical tensions and ensuing sanctions, the global economic and financial conditions have deteriorated, and pressure on the supply chain has risen again.

At the same time, the growth momentum of world commodity trade is weakening, making it difficult for India to maintain growth of foreign trade in the new fiscal year.

In light of the tightening U.S. monetary policy, foreign investors have been selling in the Indian stock market over the past six months.

Some experts believe that India is supposed to bear blunt of rising inflation, with crude oil prices jumping to a 14-year high in early March.

India’s inflation rate reached 6.95 percent in March, the highest level in nearly 17 months. Experts expect inflation to rise further in April. On April 8, the RBI raised its inflation forecast for the current fiscal year to 5.7 percent from 4.5 percent in February, which is approaching the upper limit of the RBI’s medium-term inflation target of 6 percent.

As inflation continues to rise, some institutions expect that the RBI will raise interest rates in June, a move believed to be detrimental to the sustained growth of the Indian economy.

In the context, growth forecast of the Indian economy has been lowered. The RBI slashed its forecast for economic growth this fiscal year to 7.2 percent from 7.8 percent. The International Monetary Fund (IMF), in its latest World Economic Outlook report, has cut its 2022 growth forecast for India to 8.2 percent from 9 percent. Enditem