India economy roars back, but price rises threaten recovery

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The dropping Covid cases, coupled with Diwali has put hopes back on the Indian economic sphere. But analysts say it is too early to enjoy.

The potential of the post-pandemic era consumers was seen during the Navratri celebration, where the sales rose by 15-30%.

This time there was a surge in economic activities by ₹1.25tn, a 75% jump from last year, and a 20% jump from the usual.

That has even made people hope that India would regain its title of the fastest-growing large economy in the world. All this was happening at the time when the economy and the consumers were hurt by the pandemic and await challenges.

The drop in case has surely led to this surge in the economy. Even other indicators such as electricity demand and mobility have bounced back. But the rising consumer price is affecting the consumer, while the coal crisis is affecting the industries.

Shumita Deveshwar, the senior director of India research at TS Lombard, said that unlike last year’s Diwali which was subdued the sign of receding pandemic has brought people out.

She considers it as short-term growth and is sceptical about its long-term impact.

The IMF has predicted a 9.5% GDP growth for India in the year finishing off with March, compared to China’s 8%. But the economy shrank by 7.3% last year, leaving the size of the economy minimally changed from two years prior.

Last Friday’s economic report shows the challenges the present Indian economy faces. Two such problems that are rising are from the industrial sector.

The first one is from the automobile sector, which is facing a steep cut in production because of the semiconductor crisis. The second problem is the coal shortage, forcing the government to divert fuel from industries to the energy sector.

Analysts like Aurodeep Nandi, an economist from Nomura, said that the energy crisis will severely affect the metal and core material output, which will affect other industries. Just like the magnesium crisis in China. Even that will affect India soon.

But data has not yet risen reflecting these trends. The indicators are painting a mixed picture, making it hard for the analyst to understand the growth.

The retail inflation might have fallen to 4.5% from June’s 6%. But the sustained price hikes have hurt consumers, which forced the government to reduce the taxes on petrol and diesel.

A research group, Oxford Economics, has said that to support the recovery of the Indian economy, the vaccination drive has to progress more. By now, more than half of the population has received their first dose, while a quarter is fully vaccinated.

There are hopes for sustainable growth in 2022, but it will be based upon the dropping cases, vaccination rates, and how India will survive the coal and supply crisis.

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