EY projects India to become a US$26 trillion economy by 2047 with a six-fold increase in per capita income to US$15,000

Source:  EY.com, 18 January 2023

EY forecasts India to be the fastest growing large economy witnessing a six-fold increase in its per capita GDP that would cross US$15,000 by 2047
The report identifies eight key areas that will accelerate India’s growth over the next decade
Amid the ongoing megatrends, India would have a significant advantage owing to its strong domestic demand, digitalization, largest talent pool globally, financial inclusion, global competitiveness, and sustainability transition
Macroeconomic stability, ease of doing business, power sector reforms and greater energy independence are key to economic resilience

18 January 2023: EY, the leading professional services organization, today announced its growth projection for India that estimates Indian economy will reach GDP size of US$26 trillion (in market exchange terms) by 2047, the 100th year of the country’s independence. The per capita income is expected to increase to US$15,000, putting the country among the ranks of developed economies. The report, India@100: Realizing the potential of a US$26 trillion economy, was launched by Sri Ashwini Vaishnaw, Railway and IT Minister, Government of India on the sidelines of the World Economic Forum at Davos, Switzerland.

The report underscores the growth trajectory of the Indian economy that is projected to be the highest for any large economy over the coming decades. It also cites key enablers that will underpin the country’s development over the next 25 years that will unleash business opportunities across sectors and will significantly enhance India’s global competitiveness. It recommends ensuring macro-economic stability and resilience and continued thrust on reforms, which will be especially relevant in the backdrop of on-going geo-political conflicts, inflationary pressures and slowing global growth.

Launching the report, Sri Ashwini Vaishnaw, Minister of Railways, Communications and Electronics & Information Technology in Government of India, said, “In line with Prime Minister Narendra Modi’s vision, India has commenced its journey into ‘Amrit Kaal’, a uniquely auspicious period, representing India’s opportunity to herald a new world era. There is an unparalleled impetus on developing world-class infrastructure supported by growth and investment-oriented policies and reforms to establish India as a manufacturing and technology hub. Over the next decade, India will not only be the fastest growing economy but will also play an integral role in leading the world into a sustainable future.”

Carmine Di Sibio, Global Chairman and CEO, EY said “As this study shows, India offers a unique investment opportunity as the world struggles with heightened consumer demands and increased geo-political pressures. With the biggest talent pool, an accelerated pace of economic reforms, breakthroughs in energy transition, and rapid digital transformation, the long-term growth trajectory is clearly positive. India demonstrates immense potential and is positioned to make a truly transformative impact on the world stage.”

Rajiv Memani, Chairman and Managing Partner, EY India said “The entrepreneurial spirit of the private sector and policy measures of the last few years in the domains of fiscal, digital, physical infrastructure and social inclusion has uniquely positioned India for higher and sustainable growth. India is already among the fastest growing economies globally and is now at an inflection point where a new era of growth drivers will emerge. The next 25 years – the ‘Amrit Kaal’ – must bring an equal and strong focus on providing inclusive opportunities to all sections of the population, including women and those economically and socially disadvantaged.”

EY projections

Using International Monetary Fund’s (IMF) medium-term projections and Organization for Economic Co-operation & Development (OECD)’s long-term forecasts, EY has made projections under alternative assumptions covering the period FY2023 to FY2061. For the period FY2023 to FY2028, IMF’s projections pertaining to India’s real and nominal GDP growth as well as its nominal savings rate have been used. With India’s real GDP growth forecasted to average 6.5% during this five-year period, it is expected to be moderately affected by global economic events as compared to the rest of the world. The long-term projections beyond FY2028 are based on the OECD’s methodology with suitable modifications made with respect to India’s growth profile.

Under the most preferred scenario, India is likely to cross the critical thresholds of US$5 trillion, US$10 trillion and US$20 trillion in market exchange rate terms in FY2028, FY2036 and FY2045, respectively.

Growth enablers

EY has recognized eight key enablers of growth that will impact sectors across the economy and play a critical role in propelling the growth engine, as summarized below.

World’s Information Technology and Services Hub: With strong services exports at US$254.5b in 2021-22, India enjoys a strong foothold especially in the IT and BPO services exports. There is now an opportunity for the country to seize a higher share of transformational and more complex, expertise-based services to grow faster in the IT services sector. In non-IT services segment, India has an opportunity to fill in the talent gap as developed economies face a shortage of skilled talent due to demographic changes. This would be in areas such as education and healthcare, where services are increasingly being delivered over digital channels. India has the potential to become a services and technology talent hub for the world.

Digitalization: A Force Multiplier: The furious pace of digitalization in the country, including by the government, would result in multiple benefits of improving governance, financial inclusion and providing a framework for private players to reach new markets and create new products and services. The India Stack pioneered in the country is now the global benchmark for most countries. Following a spate of digitalization in the government and private sectors, the digital economy has grown by 15.6% over the period 2014 to 2019, 2.4 times faster than the growth of the Indian economy. Platforms like Open Credit Enablement Network (OCEN) and Open Network for Digital Commerce (ONDC) will democratize credit at scale and e-commerce market respectively.

Filing the credit gap to fuel growth: India’s private debt to GDP ratio remains one of the lowest among large economies, providing a headroom to drive 200 – 300 bps incremental annual GDP growth for the next 20-30 years to reach the current global average private debt to GDP levels. With accelerated credit growth and development of the corporate bond market and digital lending, an optimal financial architecture can help address the critical demand and supply gap in credit to individuals and Micro Small and Medium Enterprises (“MSMEs”), reduce cost of capital, and increase the share of private debt to sustain high growth.

Thriving entrepreneurship spurred by private capital: Start-ups have grown remarkably over the last six years, with India emerging as the third largest ecosystem for start-ups globally. PE/VC investments in India have touched record levels, reaching US$82b in FY21-22. The spurt of new-age companies across technology and other sectors on the back of rapid digitalization, large domestic market and strong capital availability will be instrumental in delivering relatively high and sustained growth to the Indian economy.

Reaping the demographic dividend: 25% of the incremental global workforce over the next decade will come from India. India also has the largest pool of English-speaking STEM graduates with an annual addition of 2.14 million (47% women) and 6.2 million healthcare professionals which includes doctors and nursing staff. This large young and working population will not only reinforce India’s competitive advantage in the services sector but also drive manufacturing and unleash a massive boom in domestic consumption patterns.

Making domestic manufacturing competitive: As global supply chains continue to diversify post pandemic, the government’s ‘Aatmanirbhar Bharat’ (self-reliant India) initiative in manufacturing has found further impetus through path-breaking policies such as the Production-Linked Incentives (PLI). Going forward, the country has the opportunity to move up the value chain through complex, high value product manufacturing and in emerging “sunrise” sectors of semiconductors, mobile phones and EVs, positioning India as a nucleus of manufacturing for the domestic and global markets.

Building the infrastructure of the future: In addition to massive upgrades in roadways, investments in physical infrastructure are being supplemented by IT-based ease-of-doing-business initiatives under the National Logistics Policy, with an aim to increase efficiency and lower the cost of movement. Impetus on modernizing railways and Dedicated freight corridors (DFCs) could considerably transform the movement of goods and exports, thereby lowering India’s high logistics costs, making cargo delivery more effective, economical, and reliable.

Transition to sustainable energy: The government has set a target to be net zero by 2070 and reduce carbon intensity by 45% by 2030 vis-à-vis 2005 levels. Renewable energy and development of green hydrogen can help India in its endeavour to achieve energy independence by reduced hydrocarbons import. The GoI has announced several progressive policies toward adoption of green hydrogen, with a goal to meet 10% of global hydrogen demand by 2030. The policy changes have spurred investments by both the private sector and state-owned enterprises providing optimism that round the clock emission-free energy may become a reality. The renewable energy capacity has increased from 40 GW in 2014 to 166 GW by 2022. As India scales up further, opportunities across generation capacity, equipment manufacturing, storage and transportation services and other allied areas are emerging for private enterprises to capture quickly and decisively.

Policy recommendations

As India marches forward into its Amrit Kaal (an auspicious period most conducive to achieving the country’s potential) and seizes the emerging opportunities across the above enablers, it will be critical to plan for factors that can impede progress. While the GoI has been strategic in its macro-fiscal response during the pandemic and the geo-political conflict, continued prudent macro-economic management focused on managing and stabilizing inflation and currency, ensuring predictability in policies and proactively de-risking the economy would remain important for India to continually attract domestic and global investors.

Simultaneously, enhancing ease of doing business, accelerating power sector reforms and energy independence, and enabling quality healthcare and education will not only increase business confidence but also ensure socio-economic development on a sustained basis.

India confidence valid as it grows amid global woes: Bill Winters, Standard Chartered group chief executive

Source: Economic Times, 16 January 2023

Mumbai: A sense of confidence in India about the state of the economy is justified, given its strong growth amid a global economy that’s being pummelled by multi-decade high inflation, war, an energy crisis and turbulent financial markets, said Bill Winters, group chief executive of Standard Chartered Plc.

Various segments of the Indian economy – from policy makers, businesses and the financial system – appear to be singing from the same song sheet, in a turnaround from the earlier discordant notes across the economic spectrum, he said.

“Earlier, the beginning of every meeting (in India) was a little litany of things that are going badly,” Winters told ET in an interview. “Now, the early part of the discussion is, isn’t it going great? I have been coming to India for 35 years and the alignment between perspectives of local business people, small businesses, medium-sized businesses, large businesses, financial institutions, external investors, domestic investors, government, economists has never been this consistent.”

‘Global Banking Resilient’
India was the fastest growing major economy in the world in 2022, as other heavyweights faced challenges due to the energy crisis, Covid-related lockdown and supply disruptions. Furthermore, the record high inflation led to central banks raising interest rates. That eroded asset prices.

While the crypto meltdown led to bankruptcies, the bursting of bubbles in stocks and bonds wiped out trillions of dollars in investor wealth. India has weathered the storm with the least impact and stock indices at the highest ever premium to the MSCI Emerging Markets index.

Winters believes central banks need to run tight monetary policies to contain price pressures, which would translate into slower economic growth. “I’m still of the view that inflation is going to be pretty difficult to bring down,” said Winters. “I think central banks have to do a little more. Ideally, you can slow wage growth because I think that is really the driver at this point. You can’t slow wage growth without slowing the economy.”

The global financial system, especially the banking sector, is resilient, despite turbulence in the markets, though the same may not be true with the shadow banks.

“I think it is amazing we haven’t had more accidents,” said Winters.

“This is the worst year in markets since 1972. It has been horrific in both equity and fixed income markets. You get a massive shock with a pandemic, and then a further massive shock with wars and the effects of climate change and geopolitical tensions. And there’s almost no impact on the economy because the banking system is rock solid.”

Economists forecast 6% GDP growth next fiscal

Source: Financial Express, 09 January 2023

A global slowdown, fading of pent-up domestic demand and the hike in interest rates are likely to slow down the country’s economic growth to about 6% in 2023-24, economists stressed after the NSO’s first advance estimates said the GDP will likely expand 7% in 2022-23, with growth rate of just 4.5% in the second half.

Economists that FE spoke to believe that nominal growth would be in the range of about 10-11% in the next fiscal as against 15.4% seen by the National  Statistics Office (NSO) for the current year, as WPI inflation, which has a higher weight in the GDP deflator, will moderate significantly next fiscal.The national income data is a key input for the Finance Ministry as it makes its projections for the Union Budget 2023-24. This will be used for estimating important benchmarks, including the growth in tax revenue as well as the fiscal deficit.

In its December policy review, the Reserve Bank of India had pegged real GDP growth at 7.1% in the first quarter of FY24 and at 5.9% in the second quarter while noting that “the economy, however, faces accentuated headwinds from protracted geopolitical tensions, tightening global financial conditions and slowing external demand”.  It has projected CPI inflation for the first quarter of FY24 at 5% and second quarter at 5.4% on the assumption of a normal monsoon. With a global slowdown, if not a full-scale recession likely,  exports growth is also expected to be severely impacted and is likely to be in contraction, according to economists. While private final consumption may moderate, the government’s focus on investment is likely to continue and will be a key factor in fuelling economic growth next fiscal.

The slowdown in private final consumption expenditure is estimated to have already started and the NSO expects it to contract by 0.2% year on year in the second half of the current fiscal. Most economists have as yet, not firmed up projections on these parameters or FY24. Vivek Kumar, Economist, QuantEco Reasearch, said the agency has pegged GDP growth for FY23 at 6.8%, which is a tad lower than the NSO’s estimate.

“We expect real GDP growth to moderate to 6% in FY24 with nominal GDP growth closer to 10%. This slowdown will be largely external driven, which will lead to a contraction in exports. Domestic demand will also moderate as pent-up demand fades away and government prunes revenue expenditure.” The agency expects the government’s thrust on capex could strengthen next fiscal to keep the investment climate attractive for private participation. It also expects a sharp deceleration in inflation, led by WPI inflation, which should be about 2% in FY24 compared to 9.7% this fiscal. CPI inflation would be about 5.3% in FY24, moderating from 6.7% this fiscal. DK Joshi, Chief Economist, Crisil,said the agency expects GDP growth at 6% in FY24 with global factors playing a key role in the slowdown while the interest rate hikes would have some impact on growth as well. The slowdown in exports will spillover to manufacturing, which will have to be driven by domestic demand in FY24. Sectors like steel, cement will do well, he said, adding that manufacturing sector growth could be on the lines of the current fiscal.

FY23 fiscal deficit target within reach despite jump in spending
He, however, expects merchandise exports to see a flattish growth in FY24 while services exports could see a growth. About 45% of the merchandise exports are to advanced economies and this would be impacted with a global slowdown, he noted. According to the NSO data, the real growth in PFCE is seen to have moderated to 7.7% in FY23 over FY22 while government consumption is estimated to grow by 3.1% this fiscal. Exports are seen to have picked up by 12.5% this fiscal.  Manufacturing sector is estimated to have seen a mere growth of 1.6% this fiscal and there is expectation that the government would extend the Production Linked Incentive scheme to more sectors in the upcoming Budget.

“India’s growth outlook for FY24 remains clouded. Manufacturing sector could benefit frommoderation in commodity prices but will feel the pain of lower external demand. The risk of resurgence of Covid-19 cases globally could pose additional downside risk,” said Rajani Sinha, Chief Economist, CareEdge Ratings.

India annual GDP growth to slow in September quarter as COVID effect fades

Source: Economic Times, 30 November 2022

Annual growth in the Indian economy likely slowed in the July-September quarter as COVID distortions faded, economists said ahead of GDP data due on Wednesday that will provide clues about its resilience in the face of global economic turmoil.

Asia’s third-largest economy is expected to post annual growth of 6.2% in the three months to Sept. 31, according to a Reuters poll, down from explosive growth of 13.5% in the previous quarter, which was inflated by comparison with weak activity during COVID-19 lockdowns.

The gross domestic product data will cast light on the health of the economy as pandemic related disruptions ease and the government steps up spending in the hope that private spending and investments will follow, economists said.

“Several indicators suggest that the Indian economy is making resilient progress in Q2 FY23 in spite of the drag from global spill overs,” State bank of India’s economist Soumya Kanti Ghosh said, using the designation used by the government for the July-September quarter.

Ghosh, however, said annual GDP growth in the period could be slightly slower than the consensus expectation of over 6% as companies have seen a decline in margins and industrial production increased at an annual pace of only 1.5% on average last quarter, its weakest in two years.

India’s Ministry of Statistics and Programme Implementation will release the GDP data at 1200 GMT on Wednesday.

During the September quarter, the Indian government stepped up capital expenditure, spending 1.67 trillion rupees ($20.45 billion) over the three months, more than 40% higher than a year ago.

Consumption has also improved, which suggests that momentum on a non-seasonally adjusted basis is likely to be stronger in the July-September quarter than in the previous three months, economists said.

“On a sequential (non seasonally adjusted) basis, July-September GDP is likely to increase, reversing the contraction seen in the prior three months,” said Rahul Bajoria, chief India economist at Barclays.

The services sector, driven by pent-up post-COVID demand for hotels, restaurants and transport, will support growth, Bajoria said.

Dwindling exports due to a slowdown in global activity and higher interest rates may hurt economic activity in subsequent quarters, with the Indian central bank now pegging GDP growth for the 12 months to March 31, 2023, at 7.2%.

Q1 GDP growth: High on services and base effect

Source: Economic Times, 25 August 2022

Indian economy likely grew 15.1% in Q1 of FY23 aided by a favourable base and revival in services as all Covid restrictions were removed. Kirtika Suneja reports on expert estimates ahead of the April-June quarter national income estimates ahead of the offcial data release next week.

GDP rose 20.1% in Q1 FY22, 4.1% in Q4

GDP estimates for April-June

Investment growth likely recovered
Rail freight, GST e-way bills corroborate growth
GVA growth is seen at 14.5%.
Vaxx drive booster for contactintensive services
17-19% growth in trade, hotels, transport, communication
High corporate travel, lower infections in Q1
Lockdown easing benefited urban consumption

Russia-Ukraine war, high commodity prices dampened consumption
Severe heatwave hit wheat output, farm growth
Farm growth may slip to 3% from 4.1% in Q4
Slowing exports impacted the industry
Rising interest rates and high inflation

Steady growth seen but multiple risks
FY23 GDP pegged at around 7%
Demand destruction in India’s key trading partners: US, EU, China
Uncertain global environment, geo-political situation
Slowdown in global growth
Inflation and monetary tightening could dent demand

Q1 GDP growth seen at 14-15% on services’ revival

Source: Economic Times, 18 July 2022

The Indian economy likely grew at 14-15% in the first quarter of the current fiscal year, riding a recovery in contact-intensive sectors even as the rest of the economy held firm despite multiple headwinds, a poll of economists indicated. While uncertainty still looms, economists say the worst may be over.

GDP data for the first quarter will be announced on August 31.

The median estimate in the poll of 10 economists was 14.43%. It pegged FY23 growth at 7.2-7.6%. The Reserve Bank of India (RBI) has forecast 16.2% GDP growth for the first quarter and 7.2% for the fiscal year.

High-frequency indicators released during the first quarter show that there is a pick-up in economic activity despite global headwinds, said Abheek Barua, chief economist, HDFC Bank.

The recovery in contact-intensive sectors such as travel, cinemas and dining among others as the pandemic abated, supported the economy even as high inflation took a toll on some consumer sectors.

The recovery in contact-intensive sectors such as travel, cinemas and dining among others as the pandemic abated, supported the economy even as high inflation took a toll on some consumer sectors.

Nomura said improvement in high-frequency data has been broad-based across consumption, investment, industry and the external sector, although exports have started to struggle.

“Overall, we expect sequential momentum to remain strong in Q1 FY23,” said Aurodeep Nandi, India economist and vice president at Nomura.

High commodity prices, steep inflation and rising interest rates have dented sentiment, but the impact in the June quarter has been limited.

GDP to grow at 7.2%: Nomura says US recession can impact India’s growth

Source: Financial Express, 24 June 2022

Nomura has forecast India’s GDP to grow at 7.2% in 2022, before moderating to 5.4% in 2023. In a research note on Thursday, the research firm said the ‘prolonged mild recession’ in the US can lead to a slowdown in India, which has been recovering to a pre-pandemic level. The rate hike by the Federal Reserve can also dampen the investor spirit, it said.

Nomura released its Nomura India Normalization Index to track the growth of various sectors in India. According to the index, the service sector is above 40 percentage points (PP) as compared to the pre-pandemic level. The country is seeing a broad-based improvement across almost all the sectors including consumption, investment, industry and the external sector, the note said.

Some of the areas that could worsen the economy’s growth are negative sentiment shock for consumers, supply chain disruptions, worsening energy availability and tighter financial conditions.

The economic growth already faces headwinds from inflation, which continues to remain higher than Asian peers.

“We view the RBI’s new inflation forecast of 6.7% y-o-y for FY23 as optimistic and believe inflation is yet to peak, with our projection being at 7.5%. We maintain our forecast for a terminal repo rate of 6.25% by April 2023, with a 35 bps rate hike in August, followed by 25 bps rate hikes in each of the following four policy meetings. Risks appear skewed towards more front-loaded hikes and higher terminal rates. We also expect 100 bps of CRR hikes in the second half of 2022”, Nomura said.

According to the research firm, the economy is racing back to above-normal levels, with consumption 14 pp above pre-pandemic levels (PPL). Investment, industry and the external sector are also doing significantly better compared with the pre-Covid period. The key surprise has been the services sector which had been trailing 4 pp below PPL as of March but is now trending at close to 40 pp above the PPL. “Overall, our measure of aggregate demand is now 35 pp above PPL and supply is around 17 pp above PPL”.

Economy has shown exemplary resilience: Chief Economic Adviser V Anantha Nageswaran

Source: Financial Express, 12 June 2022

India has displayed remarkable resilience in recovery after a Covid-induced slump in growth, chief economic adviser (CEA) V Anantha Nageswaran said on Saturday. The country has also managed to keep price pressure under check at a time when even developed nations are grappling with runaway inflation, he added.

Addressing an event on Indian Economy: Prospects, Challenges and Action Points at Haryana Institute of Public Administration, the CEA stressed that key indicators of the economy have crossed their pre-pandemic levels. The latest GDP data showed real growth in FY22 exceeded the pre-pandemic (FY20) level by 1.5%, private consumption by 1.4% and fixed investment by 3.8%. On a year-on-year basis, the economy grew 8.7% in FY22 from -6.6% in the previous year.

“Today, we have a strong revival of private investment, and the country has comfortable forex reserves to withstand turbulence in the international currency market. The exponential growth of digital payments in India during the last few years is an indication of fast changes in the informal sector,” Nageswaran added.

The developed world is moving from low to high inflation and “it is in such times that we have managed to keep inflationary pressure under check”, Nageswaran said. Inflation in the US, for instance, hit a fresh 40-year high of 8.6% in May. India’s retail inflation scaled an 8-year peak of 7.79% in April.

Quick and decisive policy interventions by the government, duly supported with monetary measures by the central bank, have enabled the economy to stage a smart rebound, the CEA said. With its strong fundamentals, the Indian economy is much better placed now than many others, he added.

As per the projections of the International Monetary Fund, India will become a $5-trillion economy by 2027, against over $3 trillion now, Nageswaran said.

Earlier this week, he had said if the dollar GDP of the country doubled every seven years, India would emerge as a $20-trillion economy by 2040 with a per capita income of close to $15,000.

Ahead of the Q4 GDP numbers, here’s what the economists are saying

Source: Economic Times, 31 May 2022

The GDP growth for the fourth quarter of the previous fiscal year (2021-22) will be out today and if the estimates are to be believed, the economy slowed on the back of Omicron variant and rise in commodity prices.

India’s economy likely slowed in the fourth quarter and is expected to grow between 3.5-5.5 percent, economists predict.

The fourth quarter economic growth is likely to see a dip due to the impact of localised restrictions during the Omicron wave and higher commodity prices due to the Russia-Ukraine war that impacted the margins of firms.

Early and excessive heatwaves have affected the production of rabi crops which could bring down the GDP growth rate somewhere near 5.5%, said Madan Sabnavis, chief economist, Bank of Baroda

ICRA and HDFC Bank estimated the growth rate for FY22 at 8.9%. ICRA’s chief economist Aditi Nayar suggested that the services sector might grow at 5.4% due to increased demands witnessed this year. However, the agriculture and industry segments might suffer a dip this time.

Higher input costs and supply side pressures could slow down the growth rate. Barclays’ chief India economist, Rahul Bajoria, said, “We forecast India’s economic growth slowed to 3.7% year-on-year”.

Mobility restrictions due to Omicron fears might affect the GDP numbers for the quarter. Radhika Rao, executive director and senior economist, DBS Group Research, predicted the number to land somewhere near 3.7% for the fourth quarter of FY22.

“Growth likely hit a road bump in the final quarter of FY22 on a high base as well as onset of the Omicron variant which had necessitated temporary localised mobility restrictions,” said Radhika Rao, executive director and senior economist, DBS Group Research, pencilling in 3.7% growth for the quarter.

A Reuters poll suggested that the upcoming GDP numbers might stumble because of increased inflationary pressures along with the ongoing Pandemic concerns.

The estimated average growth for 2021-22 stood at 8.7% as suggested by a Reuters poll last month.

India in much better place to face Ukrainian crisis due to its successful macroeconomic management of pandemic: IMF official

Source: Financial Express, 21 April 2022

The successful macroeconomic management of the Covid-19 pandemic has resulted in a strong recovery of India’s economy because of which the country is in a better position to face the economic fallout of the current Ukrainian crisis, a top official from the International Monetary Fund has said. Observing that India represents about seven percent of the total world economy in purchasing power parity (PPP) terms and is one of the countries that are growing rapidly, IMF’s Mission Chief for India Nada Choueiri told PTI that India’s growth is lifting the global economy and is very important for a well-functioning global economy.

“So, here you have an important contribution. The other important role that India is playing today is in the provision of vaccines,” she said on Wednesday. As a significant vaccine producer, India has a role also in managing future pandemics, she said.“The macroeconomic management of the pandemic has resulted in a strong recovery although the recovery remains incomplete. So, India is in a much better place today to face the crisis from the Ukraine shock than it was at the time of the taper tantrum. But the global economy is in a very difficult place today because of the shocks,” Choueiri said.

Giving her impression about the performance of the Indian economy during this global economic crisis beginning with the Covid-19 pandemic, she said India took important measures on a spectrum of policies.“We saw sound fiscal management to get things right, to create fiscal space, to respond to the immediate needs of the population. We also saw proactive monetary policy to respond to the needs of the financial system and of the corporate sector to support the liquidity needs during the pandemic,” she said.

In its latest World Economic Outlook, the IMF downgraded its projections from its previous of nine per cent growth for the year 2022 to 8.2 per cent (a drop of 0.8 percentage points) this year. Choueiri explained that this was largely due to the war in Ukraine.“About 0.6 percentage points of that is because of the war in Ukraine and the impact on India’s economy. There are several channels that we can consider. The first and the most immediate channel is of course oil and other commodity prices. We have seen these have shot up and we expect them to remain high for a long period of time,” she said, observing that this has an impact on real incomes and hence on domestic demand, which will bring down growth.

The IMF official said the other channel is of external demand which is a global economic slowdown because of the war in Ukraine, particularly in Europe, an important trading partner for India.“We expect this to reflect lower external demand for India’s exports. So, exports will grow at a slower pace than we had been expecting in January,” she said, explaining the reasons for the 0.6 percentage drop in India’s GDP growth projections this year because of the war in Ukraine. Another 0.2 percentage point drop is the base effects, she said.

“Because we have updated our database. Compared to January, we have releases of the Q4 data and some historical data that were updated. So, these are base effects that translate into 0.2 percentage lower growth. So, from nine, we went to 8.8 because of these base effects. And then we went to 8.2, so 0.6 percentage points lower because of Ukraine,” she noted.

Choueiri said India is on a recovery path from the economic fallout of the pandemic. There was a very sharp recession in fiscal year 2021, where GDP declined by 6.6 percent. And there was a strong recovery from that last year. The estimate for growth for last year is 8.9 percent.“This is a strong rebound. And this is despite a very severe second wave, which happened in the first quarter of the financial year that just ended. So, despite that we see a strong recovery having taken place last year and the recovery is still continuing,” she said.

India’s growth will slow down to 6.9 percent next year, as per the latest projections, and will stay around seven percent for the next few years.Responding to a question on the challenges being faced by the Indian economy, Choueiri listed the Ukrainian war at the top of the list.“The risks are that this war becomes even more protracted and the solution further away. And so, economic dislocation and disruptions to supply chains and to commodity markets becoming even more severe than what we are expecting. So, this is a big risk that we worry about.” Another risk that we worry about of course is still the pandemic. We are not over from the pandemic,” she said.

India is today among the most vaccinated countries in the world. But the risk of new variants that can resist the vaccines are still there. And this is something that we need to be watchful for, she said.“The third biggest risk is a shift in global financial conditions, the IMF India chief said. Today inflation is a big worry in a lot of advanced economies in Europe, in the US and there is a sense that maybe monetary policy will need to tighten faster than anticipated by markets.
“So, if there is a significant shift in monetary policy beyond what the market expects to try to tame these inflationary pressures, this could cause an abrupt shift in global financial conditions, which could have a negative impact on India,” she said.Choueiri said compared to other countries, during the pandemic India was able to use judiciously the policy space that it had.

“We saw that the authorities mounted a strong fiscal, monetary and financial sector response to provide liquidity support to MSMEs and corporates, to provide support to help protect the poor households through in kind and cash transfers; to support rural employment schemes,” she said.According to Choueiri, the fiscal management got a number of things right in particular, for example, increasing the fuel excise at the beginning of the pandemic when prices dropped significantly to create fiscal space.

“This additional fiscal space created has helped India provide the support that it did during the pandemic,” she said.“So, we think that in terms of macro-management of the economic crisis India faired pretty good and was able to use the policy space that it had to provide support,” she said, adding that it was a similar performance on the monetary policy space as well.

Observing that in terms of the Ukraine war a whole slew sets of challenges are coming on top of the pandemic crisis, Choueiri asserted that a number of strengths will help India whether this shock.“First on the external sector, we see that the central bank has significant amount of foreign exchange reserves that would help against, weathering adverse global financial condition shocks,” she said.

On the level of food supply, which is threatening the global economy, especially emerging markets and the developing economies, India has a strong production of staples that will help insulate it from this food crisis, she asserted.“So, the Ukraine shock is still unraveling. And we have to see what specifically the policies are going to be to address this, but so far, we see that (India has) the right instruments in place to manage this crisis,” she said.

The IMF India chief said that given the shock to oil and food price, on the fiscal side, India could consider having additional support to those that are directly impacted by this in the form of additional direct in-kind transfers or, cash transfers to the most vulnerable population.Choueiri said there was a need for monetary policy to be watchful of second round effects and to communicate how they see the second-round effects and what would be the actions taken to try to stem them and prevent a sustained high inflation in India.