The Indian economy may see a post-pandemic economic reset

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On Wednesday, the Finance Ministry stated that the current year may as well come to a close with an economic reset characteristic of a post-pandemic world. It went on to say that the Union Budget‘s commitment to asset creation will re-energize the virtuous cycle of investment and crowd in private capital.

“Once the uncertainty and fear generated by the Covid-19 virus have passed, consumption will increase, allowing the private sector to step in,” the finance ministry’s department of economic affairs (DEA) wrote in its Monthly Economic Report.

External geopolitical and economic shocks, on the other hand, could jeopardize the economic recovery, according to the report.

Despite the third wave, the Ministry claims that overall economic activity has remained stable. Several high-frequency indicators, such as electricity consumption, PMI manufacturing, exports, and e-way bill generation, have performed well.

Export growth will continue if the global economy does not slow down. Imports will also increase but will be re-aligned to meet the demand for items that aren’t available locally, according to the statement.

The impact of the Omicron-induced third wave on economic activity was substantially smaller than the prior two waves, according to the ministry’s assessment.

“India’s economy is on track to grow at a rate of more than 9% this year, according to preliminary estimates.” With the MPC’s inflation projection for FY22 unchanged at 5.3 percent, inflation for the current fiscal year is expected to fall within its tolerance band of 2 percent to 6%, according to the report.

In January 2022, India’s headline inflation rate, as measured by the Consumer Price Index (CPI), increased to 6.01 percent, the highest level in seven months.

The ministry also stated that the unchanged repo and reverse repo rates, as well as the accommodative attitude of the Monetary Policy Committee, emphasize growth in these uncertain times. The DEA predicted that if retail inflation remains range-bound at 4.5 percent in 2022-23, the economy’s liquidity levels will remain high.

Global inflation and energy prices are likely to have an impact on India’s inflation rate, which the government intends to drop to a GDP deflator of 3.0-3.5 percent by 2022, according to the statement.

In terms of GDP growth, the DEA stated that the Budget’s real growth component was around 8%, which is similar to the Economic Survey’s forecast of 7.8% and the RBI’s projection of 7.8%. In FY23, the budget calls for a nominal GDP increase of 11.1 percent. According to the Economic Survey, growth will be between 8% and 8.5 percent.

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