News & Analysis

Indian Economy is on Strong Ground

SBI chairman Dinesh Khara believes that global cues notwithstanding, India's economy is on a strong wicket with only rising crude prices being a cause of worry

Global economic cues notwithstanding, India’s economic prospects today stand out with only the issue of rising global inflation and higher crude prices being a cause for concern. This is the view expressed by State Bank of India chairman Dinesh Khara, who believes that both inflation and crude prices would cool off eventually. 

The official referred to the recent predictions by the IMF where it put India’s economic growth rates for the current financial year at 6.8%, which needs to be perceived as a robust one, given the size of India’s GDP as well as the sharp downward spirals in some global economies. He held the view that inflation in India was imported due to the crude price spiral. 


It’s all because of oil prices and inflation

In fact, these global cues around oil prices also led the RBI to curtail India’s GDP growth targets from 7.2% to 7%. Rising inflation in some North American and European countries has also resulted in the tightening of monetary supplies, though IT companies in India feel this could actually benefit India’s economy as it throws up more cost arbitrage options. 

However, the SBI official did raise a flag around the unseasonal rains in the country that could create inflationary pressures around food supplies. However, he was quite confident that these issues would normalize in the medium term. Moreover, India has ample headspace for capacity addition, working currently at around 71% utilization. 

He felt that more than two-thirds of India’s inflation was caused by supply-side bottlenecks and once crude prices soften, capacity utilization grows and food prices stabilize, the government would be able to tackle inflation quite easily in a country like India. Readers would be aware that retail inflation had touched 7.4% in September whereas factory output had contracted to 0.8%. 


The battle of Ukraine mirrors in the markets

The SBI chairman said the Ukraine war had impacted inflation globally, resulting in the tightening of monetary policies across the world. This has disrupted the financial markets quite a bit, causing anxiety and volatility. Though these sentiments exist, the markets appear to be averse to accepting them for the moment, he added. 

Meanwhile, the IMF has once again praised India’s economic plans claiming that its direct cash transfer scheme was a logistical marvel for others to follow. Paolo Mauro, deputy director of fiscal affairs at the IMF said there is a lot to learn from India in this regard, as is the case with other economies of the world. 


India remains the bright spot for the IMF

In fact, IMF managing director Kristalina Georgieva said India’s economy is poised to make a mark on the global economy in the years to come. The country is set to head the G20 grouping from a position of strength during its next year’s presidency and India deserves to be called a bright spot on this otherwise dark horizon, because it has grown fast even in tough times. 

In other news, India missed beating the UK to the fifth spot on the global economies list in 2021-22 but should overtake the country by $27 billion in another year. By 2025-26, the country’s economy would equal that of Germany to become the fourth largest, moving one step ahead by 2027-28 to overtake Japan as the third largest. 

These predictions were a part of the IMF’s World Economic Outlook released recently. The size of India’s economy was $3.18 trillion in 2021-22 (FY22), while Britain’s was $3.19 trillion in 2021, according to the flagship publication by the Fund.

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