Economic experts seem to suggest that India could well have avoided the worst in terms of pandemic-related challenges and the recent Ukraine crisis. Some are now predicting that economic growth in the April-June quarter could reach 15%, supported by a recovery in contact-intensive sectors while the rest of the economy has remained stable despite strong headwinds under the form of indices.
The Reserve Bank of India said the economy experienced a gradual but uneven recovery in the quarter. “In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthened recovery in the first quarter of 2022-23, despite geopolitical headwinds, high commodity prices, especially crude oil, and volatile financial conditions, as the global fallout works to destabilize domestic financial markets with bouts of turbulence,” the RBI said in its “Financial Stability Report, June 2022.”
While official GDP data for the first quarter is still a long way off (it usually arrives towards the end of August), a report in the ET said median estimates from a poll of economists had pegged growth at 14.4% with overall growth in the current fiscal year being between 7.2 and 7.6%. For its part, RBI estimated FY23 growth at 7.2%.
Q1 numbers don’t matter
Economists don’t give too much credit to the strong first-quarter growth numbers, as they top a very weak base from the same quarter in 2021, when the second wave of the global pandemic hit the economy. However, they are almost unanimous in saying that the high-frequency indicators for the first quarter point to a peak in overall economic activity.
Some of the sectors that saw a clear recovery included contact-intensive segments such as travel, hotels and restaurants, and movies. This, despite higher inflation figures, seems to suggest an increase in spending, although some other consumer sectors have been affected. It also indicated a rise in consumption, investment and industry, although exports struggled.
However, there are those who believe that the first quarter numbers should not be an indicator of things to come during the rest of the 2023 financial year. An Economic Times report quotes Aurodeep Nandi, economist at Nomura, to suggest that a fourth-quarter US recession could potentially push the EU, South Korea, Japan and Australia to the brink.
And this could affect India in two specific ways, namely, causing an inevitable slowdown in exports as well as lower investment growth. There are indications that trade figures are down at a time when Indian crude and gold imports have increased significantly, Nandi says.
On the investment growth front, the Nomura executive says slowing global growth is the main factor behind the investment deceleration, with the impact of inflation being the other. He says people are already switching to cheaper brands and holding back consumption growth, which could start to have a negative impact over the next couple of quarters.
However, this must be juxtaposed with the fact that consumer-focused companies reportedly increased recruitment by 25-30% after a two-year gap. And it is quite evident that they are doing this in anticipation of a strong upturn in demand for the festive season which begins in August and extends until Diwali.
Overall, it looks like India’s economic growth could revolve around the retail industry, which itself is highly dependent on a strong performance from the agricultural sector. To this end, the monsoons could play a critical role.