The GDP projections for the first quarter of the current fiscal year will be made public in a few days. According to the Reserve Bank of India’s most recent statement, growth will be 16.2% for the quarter. It predicts that the economy will expand by 7.2% for the entire year, which is somewhat less than the IMF’s most recent prediction of 7.4%. According to these predictions, India will have one of the world’s fastest expanding economies during these difficult years. Beyond the headline figures, however, the economy is being driven by many contradicting forces.
India most certainly experienced robust double-digit economic growth in the most recent quarter, but according to economists surveyed by Reuters, the rate will more than halve this quarter and then continue to fall as interest rates climb before the end of the year.
The third-largest economy in Asia is struggling with high unemployment rates and inflation that is expected to continue throughout the remainder of 2022. Inflation has been running above the upper bound of the Reserve Bank of India’s tolerance zone all year.
From a consensus prediction of 15.2% growth in Q2, growth is expected to decline significantly this quarter to an annual 6.2%, driven primarily by statistical comparisons with a year ago rather than new impetus, before further slowing to 4.5% in October-December.
To handle the roughly 12 million individuals who enter the labour force each year, the economy has not expanded quickly enough. In the meantime, in an effort to keep inflation under the tolerance range, the RBI, a relative slacker in the global tightening cycle, plans to increase its benchmark repo rate by an additional 60 basis points by the end of March. This would raise the repo rate to 6.00% by the end of Q1 2023 and would come after three interest rate increases this year totalling 140 basis points.
The weak rupee, which has been trading near 80 to the dollar for months and that the central bank has been defending on currency markets by offloading dollar reserves, is also putting pressure on inflation in the economy.
