Homeeconomy News

Third wave testing India’s economic resilience: Nation powers on, with cautious optimism

This article is more than 5 month old.

Third wave testing India’s economic resilience: Nation powers on, with cautious optimism


Strong domestic demand, fast-paced vaccinations, increased foreign investments catapult the economy. How can Budget 2022 unlock the next phase of growth

Third wave testing India’s economic resilience: Nation powers on, with cautious optimism
In the early half of this year, India was caught unaware becoming one of the worst impacted nations by the deluge of the second COVID-19 outbreak. The pandemic was not just one of the worst health and humanitarian crises, but the second wave further resulted in a major economic setback for nations across the world impacting the overall growth trajectory.
However, equipped with strong macro and micro growth drivers, India is expected to recover and grow faster than earlier predictions. As signs of normalcy were finally returning, the world is once again witnessing a third wave of the pandemic.
Preparation and caution is needless to say pivotal - address the emerging healthcare impact and minimizing economic disruption.
Also Read
The Government’s calibrated efforts should be lauded for taking swift initiatives to accelerate vaccination at a mass scale, upgrades in existing availability in boosters, supported by close public-private partnerships and state-specific micro-restrictions is likely to play a pivotal role in saving lives and support the healthcare framework but also is the foundation for economic resurgence.
While the current environment remains uncertain, the Indian economy remains buoyant with current growth projections intact. As per the latest International Monetary Fund (IMF) estimates, India is expected to grow at 8.5% retaining its position as the fastest growing economy in 2022.
According to Brickwork Ratings, India’s GDP is expected to grow at 10-10.5% in FY2022 from an earlier expectation of 9% growth. The World Trade Organisation (WTO) predicts merchandise trade volume growth of 10.8% in 2021 followed by a 4.7% rise in 2022. These economic drivers augur well for India as it provides an opportunity to enhance our exports on the back of rising manufacturing capabilities.
Owing to the country’s thrust on infrastructure investments, positive consumer sentiment, as well as increased Government expenditure in managing the fiscal deficit is likely to unlock new opportunities. With a largely agrarian economy, good monsoon, and initiatives such as PM KISAN Yojna, Jal Jeevan Mission, and electricity for all have assisted in delivering robust growth supported by rural demand. The pandemic has also reinforced the resilience of the rural economy which demonstrated swift recovery. These emerging growth indicators highlight the resilience of the Indian economy despite the devastating impact of the pandemic.
Over the last year, the Government has played a dominant role in creating a conducive economic environment encouraging entrepreneurship, innovation, and domestic growth opportunities making India an attractive Foreign Direct Investment (FDI) destination. Flagship Initiatives like ‘Make in India, for the world’ and ‘Atmanirbhar Bharat’ have already gathered headwinds and have been instrumental in stabilizing the economy during volatile times fast becoming the backbone for growth.
Additionally, the Centre’s latest initiatives including National Monetization Pipeline (NMP), Gati Shakti give impetus to seamless movement of goods, services, and people which will create a multiplier effect on the economy and create employment opportunities.
With a continued focus on digitalization, India is home to the second-largest number of internet users in the world. With organizations rapidly embracing digital transformation catapulted by the pandemic, the Indian IT industry is ever booming coupled with a vibrant start-up ecosystem. Despite the challenges posed by the pandemic, India’s start-up industry remains vibrant with unicorns emerging everyday coupled with a stellar IPO debut highlighting the positive market sentiment.
With the capex to GDP ratio expected to rise by 6% points between FY21-FY26 (Morgan Stanley), it is a clear inflection point for India’s macro environment. I believe the young and agile workforce of India, improved women participation, and rapid urbanization will further push the economy. What fascinates me is India’s dynamic creativity and innovative mindset amidst a highly competitive global landscape.
According to a survey of analysts, India's economy is likely to grow at 9.4% this year, this provides a sense of renewed optimism for Corporate India. However, global economic uncertainty and headwinds emanating from rising crude oil prices, increasing input and raw material costs, energy crisis from coal supply, rising inflation with high input costs propelled by the new COVID-19 variant pose some challenges.
As we begin the year, we remain cautiously optimistic about the economic resurgence as the country embarks on its 75th year of independent India. With the upcoming Union Budget 2022, we urge the Government to consider pro-growth reforms which enhance the ease of doing business for Corporate India with regulations that benefits all stakeholders including industry and consumers.
While the economy recovers from the ravages of the pandemic, there is an urgent need for balanced fiscal measures/revisions to ensure products and commodities remain affordable, to address the menace of illicit and counterfeit trade. Such policies will strengthen a self-reliant economic rebound while providing an impetus to foreign investment, with increased capital expenditure in infrastructure, technology, start-up ecosystem as well as focus on skill development to gear for the journey ahead.
-The author Alexander Reisch is Managing Director at IPM India. The views expressed are personal. 
next story

Market Movers