Economic pundits appear to be suggesting that India could well have tided over the worst in terms of the pandemic-led challenges and the recent Ukraine crisis. Some are now predicting that the economic growth during the April-June quarter could be as high as 15%, bolstered by a recovery in the contact-intensive sectors while the rest of the economy held steady in spite of strong headwinds in the form of global cues.
The Reserve Bank of India had claimed that the economy witnessed a gradual, but uneven recovery during the quarter. “In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthening recovery in the first quarter of 2022-23, in spite of headwinds from the geopolitical situation, elevated commodity prices, especially of crude oil, and volatile financial conditions, as global spillovers endeavor to unsettle domestic financial markets with bouts of turbulence,” the RBI said in its ‘Financial Stability Report, June 2022’.
While the official GDP data for the first quarter is still some time away (it usually arrives towards the end of August), a report published in the ET said the median estimates of a poll conducted with economists had pegged the growth at 14.4% with the overall growth during the current fiscal year standing between 7.2 to 7.6%. On its part, RBI estimated FY23 growth at 7.2%.
Q1 numbers do not matter though
The economists aren’t putting too much credence to the high growth numbers for Q1 as it comes over a very low base of the same quarter in 2021 when the second wave of the global pandemic had hit the economy. However, they’re near unanimous in the view that high frequency indicators of the first quarter do indicate a spike in overall economic activity.
Some of the sectors that witnessed obvious recovery included the contact-intensive segments such as travel, hotels and restaurants and the movies. This, in spite of higher inflation numbers, seems to suggest increased expenditure though some other consumer sectors did take a hit. It also indicated a spike in consumption, investment and industry though exports did struggle.
However, there are those who feel that the first quarter numbers need not be an indicator of things to come during the rest of FY 2023. A report in the Economic Times quotes Aurodeep Nandi, economist with Nomura to suggest that a recession in the United States from Q4 could potentially push the EU, South Korea, Japan and Australia over the brink.
And this could affect India in two specific ways, viz., causing an inevitable slowdown in exports as well as a decline in investment growth. There are indications that trade numbers are falling at a time when India’s imports of crude and gold have been growing substantially, says Nandi.
On the investment growth front, the Nomura executive says global growth slowing down is the primary factor behind the deceleration of investments with the impact of inflation being the other. He claims people are already shifting to cheaper brands and curtailing consumption growth, which could start having a negative impact over the next couple of quarters.
However, this needs to be juxtaposed with the fact that consumer-focused companies reportedly stepped up recruitment by between 25-30% after a two-year gap. And it is quite obvious that they are doing so in anticipation of strong demand recovery for the festive season that starts off in August and extends till Diwali.
Overall, it appears that India’s economic growth could revolve around the retail industry, which itself relies heavily on a robust performance of the farm sector. Towards this end, the monsoons might play a critical role.
