India has now surpassed the United Kingdom’s GDP to become the world’s fifth largest economy. Although the International Monetary Fund (IMF) has cut India’s GDP growth forecast by 0.8 per cent to 7.4 per cent for 2022-23 in its recent report titled ‘The World Economic View: Gloomy and More Uncertain’, it has also said that in comparison with other major economies such as the US and China, India will grow faster. This means that India will become the fastest growing economy among the major economies of the world.
Declining Growth In the US, China
Due to rising inflation and slowdown, there have been talks of declining growth in the US and Chinese economy. The general opinion is that the situation may be even worse. The world reeling under the crisis of the pandemic is facing new challenges, including oil and food shortages and inflation due to the Russian-Ukraine war. Due to this, central banks around the world are raising interest rates, which will prove to be detrimental to growth.
While the lockdown in China is affecting supply chains around the world, slowing growth in the US, in the first part of 2022, declining household incomes and a contractionary monetary policy have been causing slowing demand and growth globally. According to the IMF, the world’s growth is projected to be 3.2 per cent in 2022 and 2.9 per cent in 2023, which is 0.4 and 0.7 percent lower than the earlier estimates, respectively.
Impressive Growth
According to the latest report of the Central Statistical Organisation (CSO), the Indian economy was poised to grow at 13.5 per cent in the first quarter of this fiscal year 2022-23, that is, between April and June 2022. This growth in GDP looks impressive, as we see growth across sectors, where maximum growth is seen in public administration, defence and other services; trade, hotels, transport communications; construction; and electricity, Gas, Water Supply and other utilities.
It’s important to note that the US’s GDP has been shrinking for the past few months, international agencies are warning of a global slowdown and the Indian economy remains the world’s fastest growing economy. Though inflation and depreciation of rupee vis a vis US dollar continues to worry the Government, it has to be understood that inflation in India is far less than other big economies. Many countries of Europe and the US, which had not faced inflation in the past many decades, are now facing the heavy brunt of inflation. The rate of inflation in the US has reached 9.1 per cent and in England it has reached 9.4 per cent, while in India it is only 7.0 per cent.
The world reeling under the crisis of the pandemic is facing new challenges, including oil and food shortages and inflation due to the Russian-Ukraine war. Due to this, central banks around the world are raising interest rates, which will prove to be detrimental to growth
Similarly, the Rupee has depreciated by 5.41 per cent against the Dollar in the last five months. Meanwhile, the Pound Sterling has depreciated by 4.87 per cent against the Rupee, the Japanese Yen by 6.10 per cent and the Euro by 4.97 per cent. That is, the Rupee has weakened against the Dollar, but has strengthened against other currencies. The Pound Sterling, which was Rs 99.46 on March 30, 2022 is now (as of August 30, 2022) Rs 94.61; 100 Japanese Yen worth Rs 62.24 is now only Rs 58.44. Similarly, Euro, which was worth Rs 84.24, is now worth Rs 80.00. That is, whether we talk about inflation or depreciation of currency, the Indian economy is performing better than other economies of the world.
The Purchasing Managers’ Index (PMI) is a measure of growth in services and manufacturing, the two main sectors of the economy. The PMI index for services stood at 59.2 in June, 2022, as estimated by Standard & Poor’s; it can be assumed that India’s services sector is performing extremely well. As far as the manufacturing sector is concerned, the PMI index has increased from 53.9 in June to 56.4 in July and maintained at 56.2 in August 2022. The agency’s survey says that despite all the adverse conditions like huge foreign investor exodus, rising interest rates, weakening rupee and slowdown in the global economy, the manufacturing sector has been performing consistently better, since November 2021.
Another indicator of growth in the economy, especially in non-farm activities, is GST receipts. It may be noted that GST receipts have remained at a consistently high level since October 2021, and are much higher than what they used to be in the past. Where GST receipts were Rs 1.17 lakh crore in September 2021, the average receipts since then have been above Rs 1.4 lakh crores. It can be understood that the manufacturing and services sector is now witnessing unprecedented growth.
If we look at another indicator, namely Index of Industrial Production (IIP), we find IIP growth at 12.4 per cent during June, 2022. Though, this is slightly lower than what it was in the same month a year ago (13.8 per cent), it’s still better, as last year growth was from a lower base due to the effect of the pandemic. Growth in mining IIP is recorded at 7.5 per cent in June 2022, manufacturing IIP growth was recorded at 12.5 per cent, while for electricity, it was recorded at 16.4 per cent. Consistency in growth of IIP across sectors, indicates uptick in economic growth.
Inflation A Matter of Concern
Be it manufacturing or the service sector, all are pointing towards rapid growth. This is corroborated by the figures of receipts of GST. The rupee has weakened slightly against the dollar, but it is not the same as in the past because in the past whenever the Indian currency weakened, it was also weakening against all the major currencies of the world. But in the last 5 months, the Rupee has strengthened against Pound, Euro and Yen. The strength of the dollar against the rupee and all major currencies is due to the rise in interest rates in the US and global turmoil; therefore, this strength is believed to be short-lived. But the main concern of India’s policy-makers is inflation. Inflation in India remained at a very low level in the range of 3 to 4 per cent for a very long time. But for some time now inflation has reached 7 per cent. Due to high inflation, the Reserve Bank of India had to increase policy interest rates, which can also have an impact on growth. In such a situation, the Government will have to make concerted efforts to curb inflation. There have been many commendable efforts by the Government to combat inflation, including the purchase of crude oil from Russia and Iran at cheap prices, increasing agricultural production in the country and reduction in tax on petrol and diesel by the Government. Due to all these efforts, the rate of inflation in India is much lower than that of the US and the UK.
Globally, we are facing food inflation, rising fuel prices and rising prices of essential raw materials. India is also being affected by the same to some extent. But efforts are on to contain inflation by increasing tax revenues and consequently controlling the fiscal deficit relative to the rest of the world. There is no doubt that if India will be able to control inflation, then we will be able to increase both our GDP and employment by promoting manufacturing in various sectors of the economy, supported by the efforts of self-reliant India.
GDP Growth Stands at 8.7 per cent
As per provisional estimates released by National Statistical Office (NSO), the Bharatiya economy in 2021-22 has fully recovered the pre-pandemic real GDP level of 2019-20. This was a statement made by Union Minister of State for Finance, Shri Pankaj Chaudhary, in a written reply to a question in Lok Sabha. Giving details of the Indian economy, the Minister also stated that as per provisional estimates released by National Statistical Office (NSO), the real GDP growth in 2021-22 stands at 8.7 per cent, 1.5 per cent higher than the real GDP of 2019-20. Owing to the recent global crisis, various international agencies, for Financial Year 2022-23 and FY 2023-24, have revised downward the growth projections of several countries including India but the revised growth for India is still higher than that of major advanced and emerging market economies, the Minister stated.
The gross GST revenue collected in the month of July 2022 is Rs 1,48,995 crore of which CGST is Rs 25,751 crore, SGST is Rs 32,807 crore, IGST is Rs 79,518 crore (including Rs 41,420 crore collected on import of goods) and cess is Rs 10,920 crore (including Rs 995 crore collected on import of goods).
This is the second highest revenue since the introduction of GST. The Government has settled Rs 32,365 crore to CGST and Rs 26,774 crore to SGST from IGST. The total revenue of Centre and the States in the month of July 2022 after regular settlement is Rs 58,116 crore for CGST and Rs 59,581 crore for the SGST.
On an encouraging note, the revenues for July 2022 are 28 per cent higher than the GST revenues in the same month last year of Rs 1,16,393 crore. During the month, revenues from import of goods were 48 per cent higher and the revenues from domestic transactions are 22 per cent higher than the revenues from these sources during the same month last year. For five months in a row now, the monthly GST revenues have been more than Rs 1.4 lakh crore, showing a steady increase every month. The growth in GST revenue till July 2022 over the same period last year is 35 per cent and displays a very high buoyancy. This is a clear impact of various measures taken by the Council in the past to ensure better compliance. Better reporting coupled with economic recovery has been having a positive impact on the GST revenues on a consistent basis. During June this year, 7.45 crore e-way bills were generated, which was marginally higher than 7.36 crore in May 2022.
Rosy Picture for India
Moody’s on September 3, 2022 retained India’s sovereign credit rating of Baa3 with a stable outlook. Global headwinds including higher inflation, the Russia-Ukraine conflict and the tightening financial condition are unlikely to derail the country’s on-going recovery from the pandemic in 2022 and 2023. The ratings agency further said that India’s large and diversified economy with high growth potential, has a relatively strong external position, and a stable domestic financing base for Government debt.
“With higher capital buffers and greater liquidity, banks and nonbank financial institutions (NBFIs) pose much less risk to the sovereign than we previously anticipated, facilitating the on-going recovery from the pandemic,” said the agency, which expects India’s economic environment to allow for a gradual narrowing in the general Government fiscal deficit over the next few years, avoiding further deterioration in the sovereign credit profile. However, the risks from a higher debt burden and weak debt affordability persist. Moody’s has forecast India’s real GDP to grow at 7.6 per cent in FY23 and 6.3 per cent in FY24. Further, the agency does not expect any rising challenges to the global economy, including the impact of the Russia-Ukraine military conflict, higher inflation, and the tightening financial conditions on the back of policy tightening, to derail India’s on-going recovery from the pandemic in 2022 and 2023. “We expect India’s general Government debt burden to have peaked at around 84 per cent of GDP in the fiscal year ended March 2021 (fiscal 2020), up from pre-pandemic levels of about 70 per cent in fiscal 2018. We expect debt to stabilise around 80 per cent of GDP, still significantly higher than the Baa-rated peer median of around 55 per cent,” it said.
Up On India, Down On China
For the next 6-12 months, Mark Mobius said fear of inflation and fear of high interest rates will continue to haunt the market. He further said that we must remember that the reciprocal of the price earnings ratio is the inflation rate of course. Therefore, as inflation rises, as interest rates go up, the PE ratio has to be adjusted. But generally speaking, we are finding that people are down on China and up on India and the reason for that is that so many of them have been burnt with their investments in China. He further said it would be fear of inflation and therefore fear of high interest rates. The Central Banks will continue to raise interest rates. Consequently, interest rates will continue to go up and that will be bad for the markets at least temporarily and by the way very important to look at the historical perspective because high interest rate do not necessarily always mean low equity markets so we have to look at that very carefully, of course the impact on bond markets is very high but on equity markets it is something different.
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